Summary
- Tariffs on Canadian, Mexican, Chinese goods come into force
- U.S. Commerce chief says Trump may work out partial solution
- Canada’s Trudeau tells Trump, ‘this is a very dumb thing to do’
- Rattled financial markets lose ground
- Target, Best Buy warn of price hikes from Trump’s tariffs
WASHINGTON, (Reuters) – U.S. President Donald Trump’s new 25% tariffs on imports from Mexico and Canada took effect on Tuesday, along with a doubling of duties on Chinese goods to 20%, sparking trade wars that could slam economic growth and lift prices for Americans still smarting from years of high inflation.
The tariff actions, which look set to upend nearly $2.2 trillion in annual trade, went live after Trump declared that the top three U.S. trading partners had failed to do enough to stem the flow of fentanyl and its precursor chemicals into the U.S.
Later on Tuesday, however, Commerce Secretary Howard Lutnick told Fox Business Network that Trump may work out a partial resolution with Canada and Mexico that could be announced on Wednesday.
“So I think he’s going to work something out with them,” Lutnick said of Trump. “It’s not going to be a pause – none of that pause stuff – but I think he’s going to figure out, ‘you do more, and I’ll meet you in the middle some way,’ and we’re going to probably be announcing that tomorrow.”
Lutnick said he had spoken to Mexican and Canadian officials on Tuesday. One source told Reuters he spoke with Canadian Finance Minister Dominic LeBlanc.
Lutnick said Trump was considering providing some relief to companies that comply with rules under the U.S.-Mexico-Canada Agreement on trade that is due for renegotiation in 2026.
Trump is expected to tout his tariff agenda, his efforts to curb the fentanyl overdose crisis and a Ukraine minerals deal during a nationally televised address to a joint session of Congress on Tuesday night.
RETALIATION STARTS
Canadian Prime Minister Justin Trudeau described the tariffs as “a very dumb thing to do” and hit back with 25% tariffs on C$30 billion ($20.7 billion) worth of U.S. imports, including orange juice, peanut butter, wine, spirits, beer, coffee, appliances and motorcycles.
Mexican President Claudia Sheinbaum took a softer approach, vowing retaliation but without details, saying she would announce Mexico’s response on Sunday.
Lutnick’s comments lifted the Canadian dollar and the Mexican peso off of deep losses earlier on Tuesday, but Trump’s tariffs prompted a global stock sell-off. Major U.S. indexes ended lower, with the tech-heavy Nasdaq veering into correction territory, while shares of automakers, homebuilders, retailers and other tariff-sensitive firms all took hits.
China responded immediately, announcing additional tariffs of 10%-15% on certain U.S. imports from March 10 and a series of new export restrictions for designated U.S. entities. Later it raised complaints about the U.S. tariffs with the World Trade Organization.
Beyond the actions he announced on Tuesday, Trudeau said Canada would impose tariffs on another C$125 billion of U.S. goods if Trump’s tariffs were still in place in 21 days, likely to include motor vehicles, steel, aircraft, beef and pork. Canada also will challenge the U.S. tariffs under rules of the WTO and the U.S.-Mexico-Canada free trade agreement.
“They’ve chosen to launch a trade war that will, first and foremost, harm American families,” Trudeau said of the Trump administration. “This is a very dumb thing to do.”
Trudeau said Trump’s fentanyl complaints were a “completely bogus” justification for the tariffs, as Canada had taken every possible action to shut down fentanyl trafficking.
Trudeau, who will see a Liberal Party successor elected this weekend, said that he believes Trump instead wants to weaken the Canadian economy to the point where Ottawa would consider annexation by the U.S.
Ontario Premier Doug Ford tore up a C$100 million contract with Elon Musk’s Starlink network, banned U.S. firms from provincial government contracts and said that if Trump’s tariffs persist, he will apply a 25% surcharge to Ontario electricity exports to the U.S.
Trump threatened to hike tariffs on Canadian goods even higher, in an apparent reference to a U.S. plan to impose “reciprocal tariffs” on global trading partners on April 2.
“Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!” Trump wrote in a post on his private social media platform.
PRICE HIKES
The tariffs were already sparking some U.S. price increases, running counter to Trump’s election vow to bring down living costs for Americans.
Target CEO Brian Cornell told CNBC that the retail giant would increase prices “over the next couple of days” on some seasonal grocery products such as avocados from Mexico.
“If there’s a 25% tariff, those prices will go up … certainly over the next week,” Cornell said.
Electronics retailer Best Buy also warned of potential higher prices as the tariffs came into effect. Best Buy CEO Corie Barry told analysts on a call that China remains the top source of products sold by the company, with Mexico in second place.
The 20% tariff on Chinese imports will apply to several key Chinese electronics categories untouched by prior duties, including smart phones, laptops, video game consoles, smart watches and speakers and Bluetooth devices.
Barry said the price increases could play out over a longer period, as Best Buy typically carries about six weeks’ worth of inventory.
“We estimate the tariffs could lead to a nearly $1,000 per household increase annually in the cost of goods,” said Nationwide Mutual chief economist Kathy Bostjancic. “The strengthening dollar helps mitigate some of the inflation impact, which would otherwise be greater.”
STACKING CHINA TARIFFS
The extra 10% duty on Chinese goods adds to a 10% tariff imposed by Trump on February 4 to punish Beijing over the fentanyl crisis and comes on top of tariffs of up to 25% imposed on Chinese imports during Trump’s first term.
Tariffs on some of these products increased sharply under former president Joe Biden last year, including a doubling of duties on Chinese semiconductors to 50% and a quadrupling of tariffs on Chinese electric vehicles to over 100%.
China’s retaliatory tariffs announced on Tuesday targeted a wide range of U.S. agricultural products including certain meats, grains, cotton, fruit, vegetables and dairy products.
Beijing also placed 25 U.S. firms under export and investment restrictions on national security grounds. Ten of these firms were targeted for selling arms to Taiwan.
U.S. farmers were hard hit by Trump’s first-term trade wars, which cost them about $27 billion in lost export sales and conceded their share of the Chinese market to Brazil.
Agricultural Secretary Brooke Rollins told reporters in Washington that farmers and ranchers would eventually see greater prosperity from Trump’s actions, adding: “His message, frankly, to the ag community is ‘trust me.'”
But the tariffs on Mexican and Canadian products could have deep repercussions for a highly integrated North American economy and signal an end to years of surprising resilience for U.S. growth.
“Today’s reckless decision by the U.S. administration is forcing Canada and the U.S. toward recessions, job losses and economic disaster,” Canadian Chamber of Commerce CEO Candace Laing said in a statement.
Even before Trump’s tariffs announcement, U.S. data on Monday showed factory gate prices jumped to a nearly three-year high, suggesting that a new wave of tariffs could soon undercut production.
The Federal Reserve Bank of Atlanta’s GDPNow model showed a stunning shift to a 2.8% U.S. GDP contraction in the first quarter, from a 2.3% estimated growth last week.
Reporting by David Lawder and Andrea Shalal; additional reporting by David Shepardson in Washington, David Ljunggren and Ismail Shakil in Ottawa, Kylie Madry and Ana Isabel Martinez in Mexico City and Joe Cash in Beijing; Editing by Alistair Bell and Rosalba O’Brien
