Donald Trump’s fresh global trade war — launched on Saturday with a barrage of tariffs against Canada, Mexico and China — sets the stage for economic warfare that will shake markets and industries.
What has happened and why?
Washington unveiled 25 per cent tariffs on most imports from Canada and Mexico, and an additional 10 per cent levy on imports from China. Canadian oil was hit at a lower rate of 10 per cent. The duties will take effect from Tuesday.
Trump said the actions were in response to the “major threat” posed by the flow of migrants and drugs into the US across its borders with Canada and Mexico.
Some content could not load. Check your internet connection or browser settings.
Some content could not load. Check your internet connection or browser settings.
Canadian Prime Minister Justin Trudeau announced retaliatory tariffs of 25 per cent on C$155bn (US$107bn) worth of American goods.
He said the “far-reaching tariffs” would hit US beer, wine, bourbon, fruit, fruit juices, perfume, clothing, shoes, household appliances, sports equipment, lumber and plastics.
Mexico announced it would impose retaliatory tariffs on US goods without specifying the size or the targets. China has not yet made clear how it will respond.
The three countries are among the biggest importers to the US. Meanwhile US companies exported $763bn of goods to the three countries in the first 11 months of 2024 — 17 per cent of total exports went to Canada, 16 per cent to Mexico and 7 per cent to China.
Some content could not load. Check your internet connection or browser settings.
What industries will be hit?
Carmakers, food producers and construction — all of which rely heavily on cross-border trade — are among the industries likely to be worst affected.
The US auto industry, particularly the traditional Big Three of Ford, General Motors and Stellantis, spread manufacturing over all three countries on the continent. US automotive suppliers also make goods in Mexico, from seats to axles. About 16 per cent of the value of a US-made car is derived from work done in Mexico or Canada.
Some content could not load. Check your internet connection or browser settings.
About 40 per cent of the cars and trucks Stellantis sells in the US are imported from Mexico or Canada, according to Daniel Roeska, an analyst at Bernstein. GM’s and Ford’s totals are 30 per cent and 25 per cent respectively.
Baird analyst Luke Junk estimated that the tariffs would cause US auto sales to drop about 7.5 per cent, or by 1.1mn vehicles. The tariffs would add about $10,000 to the cost of imported cars and trucks. They also would add about $1,250 to vehicles assembled in the US with parts manufactured in Mexico or Canada.
Carmakers with operations in Mexico and Canada will have to either absorb the cost or raise prices for consumers. The import tax could give a competitive boost to South Korean and Japanese carmakers selling in the US market, Roeska said.
Carmakers can shift production of some models to factories in the US. GM chief executive Mary Barra told investors on Tuesday the company had the capacity to do that, or to sell to other global markets to minimise the tariffs’ impact.
“We are working across our supply chain logistics network and assembly plants so that we are prepared to mitigate near-term impacts,” she added. “Many of these actions are no-cost or low-cost. What we won’t do is spend large amount of capital without clarity [on policy].”
Ford, GM and Stellantis declined to comment on the implementation of the tariffs.
Matt Blunt, president of the American Automotive Policy Council, which represents all three, said that US carmakers “should not have their competitiveness undermined by tariffs that will raise the cost of building vehicles in the US and stymie investment in the American workforce”.
Some content could not load. Check your internet connection or browser settings.
Food imports from both Canada and Mexico will be heavily affected. The US imported more than $45bn in agricultural products from Mexico in 2023, according to the US agriculture department, including strawberries, raspberries, tomatoes and beef. Another $40bn came from Canada, including beef, pork, grains, potatoes and rapeseed.
Construction materials will also face pressure, with about a third of softwood lumber used in the US imported from Canada. Canada and Mexico combined account for over a fifth of US cement imports.
“Much of the cost increase caused by tariffs will be passed on to US consumers,” said James Knightley, chief international economist at ING.
What was left out?
The Canadian oil industry was spared the heaviest of Trump’s tariffs as the White House sought to limit the inflationary impact on US motorists.
The US relies on crude imports to feed its refineries, with about 40 per cent of the crude refined in the country coming from abroad — of that, 60 per cent comes from Canada and 11 per cent from Mexico. A significant rise in the cost of crude imports would be felt at the pump.
Chet Thompson, head of the American Fuel & Petrochemical Manufacturers, a refining industry group, said he hoped a deal was “quickly reached” to end all tariffs on the industry “before consumers feel the impact”.
Saturday’s announcement made no mention of the EU, but Trump said the previous day he “absolutely” planned to target the bloc in the future.
How long will this last?
The White House said the tariffs would remain in place “until the [immigration and drug] crisis is alleviated”. But analysts said they were likely to be challenged in court.
Trump used the International Emergency Economic Powers Act of 1977 (IEEPA), the first time the law had been used to apply levies to countries.
“This move is not only an aggressive tariff action in size and scope, but it is also an aggressive assertion of the president’s power to impose those tariffs,” said Greta Peisch, partner at law firm Wiley Rein and a former US government trade counsel. “Once again, he has broken new ground and is testing the boundaries of trade authorities delegated by Congress.”
Trump threatened to apply broad tariffs to Mexico in 2019 over immigration issues, invoking IEEPA, but ultimately did not use them. Richard Nixon used a precursor to IEEPA, the Trading With the Enemy Act of 1917, to briefly apply tariffs of 10 per cent on US trading partners.
By Myles McCormick, Aime Williams and Demetri Sevastopulo in Washington, Claire Bushey in Chicago, Christine Murray in Mexico City and Ilya Gridneff in Toronto