Mexico, Canada retaliate with levies against US after Trump imposes tariffs

The tariffs: What’s being imposed

Under the order, Trump imposed a 25% tariff on all goods imported from Mexico and Canada, with the exception of energy products from Canada, which would be taxed at 10%. Goods from China would face a 10% tariff across the board. The administration has indicated that if Canada and Mexico retaliate with their own measures, the US could raise its tariffs even further, potentially igniting a larger economic conflict.

The order, effective from Tuesday, is expected to disrupt key sectors in both Canada and Mexico, including auto manufacturing in Mexico and mineral processing in Canada. The ripple effects could also impact American industries such as farming, fishing, and auto production.

Retaliation and diplomatic fallout

Trump’s decision triggered immediate reactions from the US’s North American trading partners. Mexican President Claudia Sheinbaum announced that Mexico would impose retaliatory tariffs and take other measures to protect its interests. She also rejected Trump’s accusations that the Mexican government has ties with criminal organizations.

Canadian Prime Minister Justin Trudeau also introduced 25% tariff on American goods. Trudeau, in a press conference on Saturday, said that US tariffs violate the Free Trade Agreement negotiated a few years ago, adding that “tariffs will have real consequences for American people”. Trudeau also announced that Canada was imposing 25% tariffs on $155 billion of American goods.

Economic risks and inflation fears

The tariffs could cause significant economic disruption, with analysts warning that they may exacerbate inflation, which remains a key concern for voters. The Budget Lab at Yale University projected that the average US household would lose $1,170 in annual income due to the new import taxes. Additionally, the move could slow economic growth and further drive up the prices of groceries, gasoline, housing, and autos.

The Trump administration acknowledged the risks, particularly the potential for increased fuel and utility costs. The decision to impose a lower tariff rate on Canadian energy imports — 10% instead of 25% — reflects a desire to limit disruptions in the price of gasoline and utilities.

Why have the tariffs been imposed?

Trump’s tariffs are part of a broader political strategy aimed at fulfilling his campaign promises to protect American industries and address issues like illegal immigration and drug trafficking. The President has long argued that tariffs are essential to restore America’s economic power, drawing on historical comparisons to the late 19th century when the US relied heavily on tariffs for revenue.

However, economic experts have expressed scepticism about the long-term impact of Trump’s trade policies. Critics, including former US trade official William Reinsch, questioned the logic of imposing tariffs on raw materials, which could make US manufacturers less competitive by raising the cost of imported goods.

Political fallout

The tariffs come at a critical moment for Trump’s presidency. Having returned to the White House, Trump faces the challenge of managing inflation, which remains a key issue for voters. His administration is betting that the economic risks posed by the tariffs won’t significantly worsen inflation or destabilize the global economy.

However, Democrats were quick to seize on the potential downsides. Senate Democratic Leader Chuck Schumer criticised Trump for raising prices on essential goods, warning that the tariffs would hurt consumers and undermine Trump’s promises to reduce the cost of living.

Legal framework for tariffs

Trump’s executive order invoked the International Emergency Economic Powers Act, expanding a national emergency declaration he issued on his first day in office regarding the influx of illegal aliens and illicit drugs. The law gives the president broad powers to impose tariffs and other economic sanctions during a national emergency.

President Trump is implementing a 10 percent tariff on China until we secure the full cooperation of the Chinese government in the fight against fentanyl. China plays the central role in the fentanyl crisis that is destroying American lives.

In fact, the Chinese Communist Party… pic.twitter.com/pAFfC76nNq

— The White House (@WhiteHouse) February 1, 2025

Despite the sweeping nature of the tariffs, the order does not include provisions for exemptions, which could have significant implications for industries like homebuilding, farming, and automaking that rely on imports of materials such as Canadian lumber.

Global trade tensions

The tariffs signal a broader shift in US trade policy under Trump’s second term. In addition to targeting imports from Canada, Mexico, and China, Trump has hinted at further tariffs on European goods, including computer chips, steel, oil, and pharmaceutical products. If these measures are implemented, the US could find itself at odds with much of the global economy.