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President Donald Trump took action Saturday to impose new tariffs on Canada, Mexico and China, which could have a sweeping impact on the American economy.
The additional tariffs on Canadian and Mexican goods will be 25 percent, although only 10 percent on Canadian energy, a White House official said. The new tariff on Chinese goods will also be 10 percent, as Trump has said for a while.
The move sets the stage for a possible North American trade war that economists say could hurt economic growth on the continent and increase inflation. The new duties take effect on Tuesday, but goods shipped before Saturday will not face the higher tax, the White House said.
The White House issued the tariffs after failing to resolve Trump’s concerns with the three countries over fentanyl trafficking, undocumented migration and the U.S. trade deficit. Trump confirmed on Friday the tariffs were coming, telling reporters he did not believe they would boost prices.
“Tariffs don’t cause inflation. They cause success. Cause big success. So we’re going to have great success. There could be some temporary, short-term disruption, and people will understand that,” he said.
Trump imposed the tariffs under the International Emergency Economic Powers Act, a nearly 50-year law that gives the president sweeping power to impose sanctions after declaring an emergency. No president has previously used the law to impose tariffs, although Trump threatened to use it against Mexico in his first term and more recently against Colombia when they balked at accepting a planeload of migrants deported by the United States.
Economists warn new tariffs could hurt the U.S. economy, rattle the stock market and frustrate Trump’s desire for the Federal Reserve to further lower interest rates.
The combination of a 25 percent tariff on Mexico and Canada and a 10 percent tariff on China goods could cause U.S. economic output to decline by 1.5 percent in 2025 and 2.1 percent in 2026 as higher prices dampen consumer spending and business investment, said Gregory Daco, chief economist at EY-Parthenon, a division of the accounting firm Ernst & Young.
He also forecast inflation to increase 0.7 percentage points in the first quarter, compared to what it would be without Trump’s new tariffs, and to average 0.4 percentage points higher throughout the course of the year.
“Rising trade policy uncertainty will heighten financial market volatility and strain the private sector, despite the administration’s pro-business rhetoric, Daco said. “If tariffs drive inflation expectations higher, the Fed may feel pressured to keep rates restrictive for longer, tightening financial conditions and weighing on growth momentum.”
Immediate congressional reaction was split along party lines, with Republicans praising the move as a sign of Trump’s resolve to secure America’s borders and pressure the three countries to address U.S. concerns about unfair trade practices.
“The tariffs on imports from Canada, Mexico, and China send a powerful message that the United States will no longer stand by as other nations fail to halt the flow of illegal drugs and immigrants into our country,” House Ways and Means Chair Jason Smith (R-Mo.) said in a statement. “On top of these crises, our neighbors continue to take advantage of American workers, manufacturers, and farmers, including Canada’s refusal to allow real access to its dairy market and Mexico’s unjustified barriers to U.S. corn.”
But Rep. Richard Neal, the top Democrat on House Ways and Means, harshly criticized Trump’s action as inflationary and damaging to national security by jeopardizing relations with Canada and Mexico.
“Every promise made by the President during the campaign about lowering costs, reducing inflation, and putting the working and middle-class first was a lie,” Neal said. “These reckless tariffs take a sledgehammer where a scalpel is necessary, and the American people will pay the price.”
Together, Canada, Mexico and China accounted for about $1.3 trillion worth of U.S. imports last year, or about 40 percent of the $3.2 trillion in goods that American companies and consumers purchased from around the world.
The countries are also the top three markets for U.S. agricultural exports, putting U.S. farmers on the front line of expected retaliation.
Hours before the U.S. action became final, the premier of Canada’s largest province warned the tariffs will cause long-term economic pain to the people who elected Trump.
“To President Trump, I can only say this: This is not a smart move. It’s selfish. It not only hurts Canadians, it hurts your own people. It hurts you and your administration. … It makes Americans poorer,” Ontario’s Doug Ford said. “The impact of these tariffs will be felt almost immediately. Company’s orders are going to slow down. Factories will have to reduce shifts. Workers may lose their jobs across Ontario,” he added.
Flavio Volpe, the president of Canada’s Automotive Parts Manufacturers’ Association, told POLITICO on Saturday that 25 percent tariffs will cripple the North American auto industry.
“The industry will shut down in the U.S. and Canada and Mexico within a week, much like we saw it happen during the first phase of the pandemic and the Ambassador Bridge blockade,” said Volpe, who is also a member of Prime Minister Justin Trudeau’s Council on Canada-U.S. Relations, a group that includes interests from politics, business, labor and industry.
American business groups are also broadly opposed to the tariffs, which John Murphy, senior vice president of the international division at the U.S. Chamber of Commerce, called “a recipe for decline” by destroying productivity and high-wage jobs.
“Erecting a tariff wall around the U.S. and replacing traded goods with domestically-made ones would force the creation of low-wage, low-value-added jobs — when workers to fill those jobs aren’t even available,” Murphy wrote on the social media platform X.
Tariffs could also fuel inflation in the United States, warned Leslie Sarasin, president and CEO of FMI — The Food Industry Association.
The year-round availability of food products, such as fruits and vegetables, requires imports to supplement domestic production. New tariffs will “drive up the cost of doing business and food prices at a time consumers are extremely concerned about prices,” Sarasin said.
The U.S. auto sector will also be hit hard.
Last year, the United States imported more than $126 billion worth of autos and auto parts from Mexico and $46 billion from Canada. Many of those are produced by well-known U.S. and foreign brand companies with operations in the two countries.
That prompted Matt Blunt, president of the American Automotive Policy Council, which represents Ford, GM and Stellantis, to urge Trump not to levy tariffs on companies that have invested “tens of billions of dollars” to comply with the stringent sourcing provisions of the U.S.-Mexico-Canada Agreement that Trump negotiated during his first term.
A few groups, however, do support the duties. The Coalition for a Prosperous America, a business group representing manufacturers who welcome protection against foreign competitors, praised the move.
“President Trump’s decision to impose universal tariffs is a bold and necessary step toward reversing decades of failed trade policies and rebuilding America’s manufacturing and agricultural industries,” Zach Mottl, the group’s chair, said.
The 10 percent tariff on China builds on the duties of up to 25 percent that Trump imposed on more than $300 billion worth of Chinese goods during his first term. Because of that, business groups are somewhat less agitated by additional duties on China, especially since Trump had threatened to impose a 60 percent tariff on all Chinese goods during his election campaign.
In comparison, the duties on Canada and Mexico fly in the face of the U.S.-Mexico-Canada Agreement which Trump negotiated during his first term to replace the 1990s-era North American Free Trade Agreement. Like NAFTA before it, the USMCA eliminates all tariffs between the three countries with only a few exceptions.
However, Trump included certain provisions in the USMCA, like tough auto content provisions, that he hoped would eliminate the large U.S. trade deficit with both countries.
Instead, trade figures due to be released Wednesday are expected to show the combined deficit with the two countries totaled about $230 billion in 2024, about three times the level in 2016, before Trump took office and forced the two countries to renegotiate NAFTA.
Canada, Mexico and China have all sought in recent months to show Trump they are cracking down on fentanyl and undocumented migrants coming over the border into the United States.
A White House official was vague about what more the three countries need to do to persuade Trump to lift the duties.
“There’s going to be a wide range of metrics [for success on the issue] in Donald Trump’s golden age. We will have only legal immigration, and we will have zero Americans dying from Chinese slash Mexican slash Canadian fentanyl,” said the official, who was granted anonymity per the ground rules for the press briefing.
Secretary of State Marco Rubio and White House policy chief Stephen Miller are leading talks with the three countries, along with officials from the Departments of Treasury, Homeland Security and Interior, he added.
CORRECTION: The story has been updated to correct the value of U.S. imports from Canada, Mexico and China.
