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US President Donald Trump's long-threatened tariffs against Canada and Mexico went into effect on Tuesday, putting global markets on edge and setting up costly retaliations by the United States' North American allies.
Starting just past midnight, imports from Canada and Mexico are now to be taxed at 25 per cent, with Canadian energy products subject to 10 per cent import duties.
The 10 per cent tariff that Trump placed on Chinese imports in February was doubled to 20 per cent, and Beijing retaliated on Tuesday with tariffs of up to 15 per cent on a wide array of US farm exports. It also expanded the number of US companies subject to export controls and other restrictions by about two dozen.
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Canadian Prime Minister Justin Trudeau said his country would slap tariffs on more than $US100 billion ($160 billion) of American goods over the course of 21 days.
Following Canada and China, Mexico President Claudia Sheinbaum said on Tuesday that Mexico will respond to 25 per cent tariffs imposed by the United States with its own retaliatory tariffs on US goods.
Sheinbaum said she will announce the products Mexico will target on Sunday in a public event in Mexico City's central plaza, perhaps with the delay indicating Mexico still hopes to de-escalate the trade war set off by Trump.
The US president's moves raised fears of higher inflation and the prospect of a devastating trade war even as he promised the American public that taxes on imports are the easiest path to national prosperity. He has shown a willingness to buck the warnings of mainstream economists and put his own public approval on the line, believing that tariffs can fix what ails the country.
"It's a very powerful weapon that politicians haven't used because they were either dishonest, stupid or paid off in some other form," Trump said on Monday at the White House.
"And now we're using them."
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US markets dropped sharply on Monday after Trump said there was "no room left" for negotiations that could lower the tariffs. Shares in Europe and Asia were mostly lower Tuesday after they took effect.
The Canada and Mexico tariffs were supposed to begin in February, but Trump agreed to a 30-day suspension to negotiate further with the two largest US trading partners. The stated reason for the tariffs is to address drug trafficking and illegal immigration, and both countries say they've made progress on those issues. But Trump has also said the tariffs will only come down if the US trade imbalance closes, a process unlikely to be settled on a political timeline.
The tariffs may be short-lived if the US economy suffers. But Trump could also impose more tariffs on the European Union, India, computer chips, autos and pharmaceutical drugs. The American president has injected a disorienting volatility into the world economy, leaving it off balance as people wonder what he'll do next.
"It's chaotic, especially compared to the way we saw tariffs rolled out in the first [Trump] administration," said Michael House, co-chair of the international trade practice at the Perkins Coie law firm.
"It's unpredictable. We don't know, in fact, what the president will do.''
Democratic lawmakers were quick to criticise the tariffs, and even some Republican senators raised alarms.
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Senator Susan Collins, a Republican from Maine, said she's "very concerned" about the tariffs going into effect because of her state's proximity to Canada.
"Maine and Canada's economy are integrated," Collins said, explaining that much of the state's lobsters and blueberries are processed in Canada and then sent back to the US.
The world economy is now caught in the fog of what appears to be a trade war.
Even after Trump announced on Monday that the tariffs were going forward, Canadian officials were still in touch with their US counterparts.
"The dialogue will continue, but we are ready to respond," Canadian Defence Minister Bill Blair said in Ottawa as he went into a special Cabinet meeting on US-Canada relations.
"There are still discussions taking place."
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Shortly after Blair spoke, Trudeau said Canada would impose 25 per cent tariffs on $CA155 billion ($172 billion) worth of American goods, starting with tariffs on $CA30 billion ($33 billion) worth of goods immediately and on the remaining amount on American products in three weeks.
"Our tariffs will remain in place until the US trade action is withdrawn, and should US tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures," Trudeau said.
The White House would like to see a drop in seizures of fentanyl inside the United States, not just on the northern and southern borders. Administration officials say that seizures of fentanyl last month in everywhere from Louisiana to New Jersey had ties to foreign cartels.
Damon Pike, technical practice leader for customs and trade services at the tax and consulting firm BDO, suggested the responses of other countries could escalate trade tensions and possibly increase the economic pressure points.
"Canada has their list ready," Pike said. "The EU has their list ready. It's going to be tit for tat.''
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The Trump administration has suggested inflation will not be as bad as economists claim, saying tariffs can motivate foreign companies to open factories in the United States. On Monday, Trump announced that Taiwan Semiconductor Manufacturing Company, the computer chipmaker, would be investing $100 billion in domestic production.
Still, it can take time to relocate factories spread across the world and train workers with the skills they need.
Greg Ahearn, president and CEO of The Toy Association, said the 20 per cent tariffs on Chinese goods will be "crippling" for the toy industry, as nearly 80 per cent of toys sold in the US are made in China.
"There's a sophistication of manufacturing, of the tooling," he said. "There's a lot of handcrafting that is part of these toys that a lot of people don't understand … the face painting, the face masks, the hair weaving, the hair braiding, the cut and sew for plush to get it to look just so. All of that are very high hands, skilled labor that has been passed through generations in the supply chain that exists with China."
For a president who has promised quick results, Ahearn added a note of caution about how quickly US factories could match their Chinese rivals.
"That can't be replicated overnight," he said.
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