President Donald Trump signed three executive orders for tariffs Saturday, the first time a president has used powers granted under the International Emergency Economic Powers Act of 1977. The orders also include retaliation clauses that would ramp up tariffs if the countries respond in kind. Trump cut the levy on imports of Canadian energy to 10%. Link to White House fact sheet.
Trump officially announced plans to impose new tariffs on imports including computer chips, pharmaceuticals (without specifying which, at what level or when it would take effect), steel, aluminum, copper, oil, and gas by mid-February, expanding his administration’s trade war strategy. He said he would put new taxes on imported oil and gas on Feb. 18 and aimed to do the same for steel and aluminum this month or next month. This move is separate from scheduled tariffs — 25% on Canadian and Mexican goods and 10% on Chinese products set for Saturday, Feb. 1 — and aims to pressure Mexico, Canada, and China to address issues such as border security, drug trafficking, and migration.
Of note: Canadian officials were told by U.S. officials on Saturday that the tariffs would be implemented on their goods on Tuesday, according to people familiar with the situation. Senior figures on Capitol Hill were briefed on the decision.
Trump also hinted at additional tariffs on EU products, citing poor treatment of the United States, though details remain vague. The president said he “absolutely” would impose tariffs on their shipments to the United States. “We are treated so badly: They don’t take our cars, they don’t take our farm products; essentially, they don’t take almost anything. And we have a tremendous deficit with the European Union. So, we’ll be doing something very substantial with the European Union,” he said.
Big impact. Such levies targeting imports from America’s top three trading partners — which together accounted for more than 41% of the U.S.’ goods trade in the January-November period of 2024 — potentially affect trillions of dollars in merchandise, like cars and farm products.
Trump said there was nothing the three countries could do now to stop the tariffs.
Trump announced general tariffs at his Mar-a-Lago, Florida estate. White House spokesperson Karoline Leavitt said the tariffs would be implemented immediately, but as noted, Canada said tariffs would be implemented on their goods on Tuesday. It typically takes weeks for tariffs to take practical effect.
Key points:
· Sector-specific tariffs: New duties will target high-tech and industrial sectors, potentially covering more imports by dollar value than previous tariffs on China. Trump also suggested Friday he’d consider new tariffs on oil and gas, potentially by Feb. 18, though it wasn’t clear what he was referring to.
· The duties come on top of existing tariffs on those products. The first Trump administration imposed tariffs on more than $300 billion worth of Chinese goods to respond to an array of unfair trade practices, including intellectual property theft. The Biden administration kept all of them in place and increased rates on $18 billion in goods, including electric vehicles, solar panels, medical equipment, lithium-ion batteries, steel, and aluminum.
· A second wave of tariffs could follow a comprehensive review of the trade relationship among the three countries (Canada, Mexico and China) that Trump has ordered completed by April 1.
· Exemptions and negotiations: There are ongoing discussions about potential carve-outs for critical industries (like oil and automobiles) amid intense lobbying by U.S. business and labor groups. Some hope for exemptions to mitigate domestic economic risks. Trump told reporters in the Oval Office on Friday that there was nothing Canada, Mexico and China could do to avoid the tariffs before Saturday. “Not right now,” he said, telling reporters that his tariff threat wasn’t a negotiating tool. “It’s a pure economic [decision],” he said. But he did say he was considering a lower tariff on Canadian crude oil — 10% instead of 25% (and that it was he announced on Saturday). At nearly $100 billion in 2023, imports of crude oil accounted for roughly a quarter of all U.S. imports from Canada, according to U.S. Census Bureau data. The tariff on China would be for what Trump said was failing to stop the manufacturing of fentanyl precursor chemicals.
· Why a lower tariff on China? Trump’s threats on tariffs are clearly not all bark and no bite, said Wendy Cutler, vice president of the Asia Society Policy Institute in Washington and a former acting deputy U.S. trade representative in the Obama administration. “He’s clearly in an action-oriented mode and wants to use these tariffs to pressure the three countries to address serious U.S. concerns,” Cutler said. “This is the beginning of the story, this is the first salvo in what’s going to be a long four years,” she said. On why the tariff on Chinese goods will be 10% and not 25%, Cutler said this shows that Trump “may be more interested in seeking a trade deal” with Beijing.
Trump said the Biden administration had not enforced trade deals beneficial to U.S. farmers. During a Friday press conference in the Oval Office, Trump criticized the previous administration’s handling of trade agreements. During his previous term, Trump initiated trade disputes, particularly with China, which significantly impacted U.S. agricultural exports. He stated that China had committed to buying $50 billion a year in farm products, but claimed that former President Joe Biden didn’t enforce this commitment. Trump said, “We’re going to enforce it,” referring to this $50 billion annual purchase agreement with China. His recent statements suggest a continuation of this aggressive stance on trade, framing it as necessary to protect American farmers and correct perceived imbalances left unaddressed by the Biden administration.
· Trump’s team was initially considering a grace period between the announcement of the tariffs on Saturday and when they would be imposed, but White House press secretary Karoline Leavitt played down that possibility on Friday. Leavitt said that a Reuters report stating that the tariffs wouldn’t be implemented until March 1 was “false.”
· Reasons for the tariffs. Trump on Friday said, “We’ll be announcing the tariffs on Canada and Mexico for a number of reasons. Number one is the people that have poured into our country so horribly and so much,” he said about migrants that have entered the United States via its southern and northern borders. “Number two are the drugs, fentanyl and everything else, that have come into the country and number three are the massive subsidies that we’re giving to Canada and to Mexico in the form of [trade] deficits,” Trump said. “I’ll be putting the tariff of 25% on Canada and separately 25% on Mexico and we will really have to do that because we have very big deficits with those countries. Those tariffs may or may not rise with time,” he said.
· International reactions: Leaders from Canada, Mexico, and China are preparing responses. The scale of their responses will depend on whether Trump’s actions match his rhetoric, according to officials in Canada and Mexico.
Canada comments. “You will find when we do respond, at least initially, that we will focus on tariffing American goods that actually are sold in significant quantities in Canada, and especially those for which there are readily available alternatives for Canadians,” Natural Resources Minister Jonathan Wilkinson said in an interview cited by Bloomberg on Friday (link), hours after Trump reiterated his plan to bring in tariffs on Canada, Mexico and China.
Of note: Canadian officials were told by U.S. officials on Saturday that the tariffs would be implemented on their goods on Tuesday, according to people familiar with the situation.
Canadian Prime Minister Justin Trudeau warned of economic fallout, and Canada even weighed an export tax on oil to undercut Trump’s ability to exclude gasoline price hikes from his tariff fight. Mexican and Canadian officials have expressed frustration that they don’t know what actions would satisfy Trump’s demands, despite weeks of meetings between senior officials. A Canadian contact said Trump “keeps on moving the goal post… If Trump was trying to build anti-American sentiment in a country like Canada (who get mad about little except for hockey), he is executing well.” Trudeau’s government won’t unveil its retaliation list until it sees what the Trump administration moves forward with. After Trump tied tariffs to what he called an “invasion” of migrants and fentanyl, Canadian officials in December unveiled a $900 million border plan, to add helicopters, drones and other surveillance capacity. “Canada’s border is strong and we’re making it stronger,” said Public Safety Minister David McGuinty, speaking to reporters. “When our largest ally raises concerns, we take it seriously.” McGuinty was in Washington Friday to meet with U.S. border czar Tom Homan. Bloomberg reports that Canadian officials come to the discussions armed with documents, charts and even time-lapse videos of certain border crossings. Only 1.5% of migrants apprehended by U.S. Customs and Border Protection in the 2024 fiscal year and 0.2% of fentanyl seized at U.S. borders came from Canada.
Ontario Progressive Conservative Leader Doug Ford spoke in anticipation of Trump’s tariffs on Canadian imports, which are set to be implemented on Saturday, calling them “reckless… I wish I had better news to share but Donald Trump couldn’t have had been more clear. He’s moving forward with these reckless tariffs. He’s chosen to tear up decades of good will that has made life better for workers on both sides of the border, for businesses on both sides of the border, for families on both sides of the border,” Ford said at a campaign event in Brampton.”
Mexican President Claudia Sheinbaum vowed to counter with retaliatory measures. Sheinbaum said: “We have Plan A, Plan B, Plan C, depending on what the government of the United States decides. It’s very important that Mexicans know that we will always defend the dignity of our people, respect for our sovereignty and a dialogue among equals [with the U.S.], not with subordinates.” Sheinbaum noted that Mexico has been open to receiving its citizens sent back under Trump’s plan for mass deportation of unauthorized migrants and that it was prepared to take some from other countries, which represented a concession. Deputy Economy Minister for Trade Luis Rosendo Gutierrez is expected to travel to Washington on Monday, according to reports. But he can’t meet with U.S. trade or Commerce Department officials until they’re formally ratified, they said. Instead, he’ll talk to business leaders and associations. Sheinbaum has also pointed to Foreign Minister Juan Ramon de la Fuente as a key interlocutor to US Secretary of State Marco Rubio. High-level teams from Mexico’s foreign ministry and the State Department are in frequent communication working on security and migration, Mexico is the No. 1 trade partner of the United States, and sends 80% of its exports north. Mexico supplies around half of America’s imported fruit and two-thirds of imported vegetables, in dollar terms — tomatoes, berries, bell peppers, cucumbers. And it’s the largest source of imported beer. Mexico also is the No. 1 provider of medical devices to American hospitals and doctor’s offices, from surgical gloves to scalpels. Mexico emerged last year as the top market for American agricultural exports, totaling $30 billion.
· USMCA impact. While the U.S., Canada and Mexico have a standing free-trade agreement, it isn’t clear that the expected tariff action would immediately violate that pact. The U.S.-Mexico-Canada Agreement (USMCA), like most trade pacts, includes a provision that allows for the imposition of tariffs on national-security grounds.
One of Trump’s tariff goals is to push Canada and Mexico to accelerate a renegotiation of USMCA, now slated for July 2026. President Trump and his supporters believe that imports of cars and steel from Mexico (and China’s involvement in such activity) are weakening U.S. manufacturers. And they say the USMCA, the trade deal Trump signed in 2020 to replace the North American Free Trade Agreement, needs to be updated — or perhaps, scrapped.
Of note: According to economists at S&P Global, of the imports coming into the United States from Canada and Mexico, more than 18% of their value was created in the United States, before being sent to those countries. That’s far more than the proportion for other countries, and a sign of how closely the economies are integrated.
One out of three cars sold in Mexico last year came from China. That means Chinese exports are now meeting Mexican demand for cars, rather than exports from the United States, a blow to the U.S. auto industry.
· Economic impact concerns: “I think there could be some temporary, short-term disruption and people will understand that,” Trump said. Trump said the tariffs “will reinvigorate industry. “The way you bring it back to the country is by putting up a wall. And the wall is a tariff wall,” he said. “The tariffs are going to make us very rich and very strong.” He dismissed concerns that placing steep taxes on many foreign goods would lead to renewed inflation in the United States, where prices are still rising faster than the Federal Reserve’s target. “Tariffs don’t cause inflation. They cause success,” the president said.
Although Trump dismissed worries about inflation and supply chain disruptions, critics warn that broad tariff applications could disrupt trade and lead to higher prices for consumers, especially in border regions heavily reliant on imports from North America. Tariff-related price increases would hit consumers’ wallets at a time when beef prices are near record highs and costs for eggs have climbed after bird flu eliminated millions of egg-laying hens. “Any increase in expenses in the form of a tariff subsequently serves as a ‘food tax’ on consumers for imported products and is not a workable solution,” National Grocers Association spokesman David Cutler said.
Tariffs are paid by American importers and borne by consumers, though offset potentially by price reductions abroad. The burden will fall disproportionally on low-income households who spend more of their income on physical goods relative to higher income households who spend more of their income on services and experiences, which aren’t subject to tariffs.
A new analysis from the Budget Lab of Yale estimated that the proposed tariffs could raise annual costs on households by roughly $1,300. Researchers at the Peterson Institute for International Economics in Washington estimate that a 25 percent tariff on all exports from Mexico and Canada would lower U.S. gross domestic product by about $200 billion for the duration of the second Trump administration. A model gauging the economic impact of Trump’s tariff plan from EY Chief Economist Greg Daco suggests it would reduce U.S. growth by 1.5 percentage points this year, throw Canada and Mexico into recession and usher in “stagflation” at home. “We have stressed that steep tariff increases against U.S. trading partners could create a stagflationary shock — a negative economic hit combined with an inflationary impulse — while also triggering financial market volatility,” Daco wrote on Saturday.
Facts and figures: 17% of U.S. goods exports go to Canada, 16% go to Mexico and 7% go to China and totaled $763 billion in the first 11 months of 2024.
Of note: For many items, there is roughly a three-month wait until the tariffs impact consumer prices as retailers sell their existing inventory that are not subject tariffs. Getting a firm impact assessment of tariffs is difficult because some exporters will absorb some of the additional costs, and currency changes by some countries will temper the impacts. There will also mean changes to trade flow patterns as buyers seek alternatives sources and sellers look for other importers.
Mexican Economy Minister Marcelo Ebrard said a 25% duty on Mexican goods would have a multibillion-dollar impact on U.S. consumers, affecting millions of households. “Mexico is the main exporter of finished products like automobiles, computers, TV screens and refrigerators,” he said, adding that tariffs would also raise prices of fresh fruit and vegetables, meat and beer. “This impact will be greater in border states and cities that are big consumers of Mexican goods, like California, Texas, Florida and Arizona,” Ebrard said.
A Wall Street Journal opinion item (link) was headlined: The Dumbest Trade War in History; Trump will impose 25% tariffs on Canada and Mexico for no good reason.
House Ag Committee Chairman GT Thompson (R-Pa.): Trump’s tariff policy is a crucial tool. Following the imposition of tariffs on Mexico, Canada, and China by the United States, House Ag Chairman GT Thompson issued the following statement: “President Trump’s tariff policy has been an effective tool in leveling the global playing field and ensuring fair trade for American producers. Look no further than Colombia’s about face on accepting repatriated criminal migrants at the mere threat of tariffs. After four years of the Biden/Harris administration’s failure to expand foreign markets, which led to an inflated agricultural trade deficit of $45.5 billion, America’s producers deserve an administration that will fight for them. I look forward to working alongside of President Trump to support our hardworking producers and to make agriculture great again.”
House Ag Committee Ranking Member Angie Craig (D-Minn.) released the following statement (link): “No one wins in a trade war. The last time President Trump started a trade war, costs went up for America’s family farmers and consumers. The same will happen today. The cost of imported goods like oil, lumber, avocados, tomatoes, bell peppers, lettuce, broccoli, cucumbers, onions and mushrooms and other fresh food are likely to go up for Americans. At a time when farmers are struggling with high input costs and the American people continue to struggle with the cost of groceries, these tariffs will make it more expensive for farmers to grow food and for consumers to buy it. Additionally, when American farmers face the inevitable retaliatory tariffs from our trading partners, their profits take a hit. This action is especially questionable since President Trump’s previous administration negotiated our last trade agreement – USMCA — with Canada and Mexico.”
· Tariffs coverage. Depending on carve-outs, this round of Trump tariffs could cover more trade in dollar value than his first-term duties on China. Trump’s four tranches of tariffs on Chinese goods in 2018-19 covered imports valued at around $360 billion at the time. New tariffs on Canada and Mexico plus additional tariffs on China would — if all items are subject to the action — cover imports valued at more than $1.3 trillion in 2023. Canada and Mexico combined supplied about 28% of U.S. imports in the first 11 months of 2024, according to Census Bureau data. China accounted for an additional 13.5%.
Price hikes: From Tonka trucks to tequila. While cars and lumber are obvious price hike targets, some unexpected items could see increases, too, according to the Wall Street Journal (link):
o Cherry tomatoes: Canada and Mexico supply much of the U.S. market.
o Tonka trucks: Made exclusively in China, these toys may see a price jump from $29.99 to nearly $40.
o Maple syrup: With most commercial production coming from Canada, costs could rise. Canada and the U.S. are the only two countries that produce this at commercial scale, according to Canada’s agriculture department. More than 60% of Canada’s production is exported to the U.S.
o Tequila & avocados: Mexico is the top supplier, meaning Super Bowl snacks and drinks could cost more.
o Smartphones: Previously spared, they may now be hit with new tariffs.
o Sledgehammers: Already taxed at 25%, additional tariffs could push prices even higher.
· Securing the U.S. border and dealing with fentanyl are the two major goals of the Trump tariffs. According to Robert Marbut, former homelessness czar for the first Trump administration, fentanyl has killed more Americans in the past five years than all wars combined in the past 100 years. Marbut criticized Canada’s liberal drug policies and Mexico’s unstable regions, where cartels control the drug trade. He said that if the U.S. government is going to tackle fentanyl, it needs to recriminalize drugs domestically, stop China from sending precursors, get the biker gangs in Canada under control, and force Mexico to rein in the cartels. “Fentanyl is a hundred times more powerful than morphine,” he said. “Fentanyl dusts will kill children, fentanyl dusts will kill adults. So just three grains of salt equivalent will kill anybody.”
· Tariffs as a revenue raiser. Peter Navarro, a Trump trade adviser, told CNBC on Friday that the tariff effort can replace the revenue of tax cuts. “Tariffs can easily pay for that,” Navarro said. “President Trump wants to move from the world of income taxes and countless IRS agents to the world where tariffs, like in the age of McKinley, will pay for a lot of government that we need to pay for and lower our taxes.” Perspective: The non-partisan Congressional Budget Office has put the cost of extending the 2017 tax cuts — Trump’s top legislative priority — at $4.6 trillion over 10 years. A 25% tariff on the more than $900 billion in annual imports from Canada and Mexico would raise roughly $225 billion annually or $2.3 trillion over 10 years if the tariffs had no impacts on trade, which many economists see as unlikely.
Of note: Navarro thinks corn exports haven’t been entirely benign. Navarro said that NAFTA had kick-started America’s illegal immigration problem, because when the United States began exporting corn to Mexico after the trade pact took effect, that put Mexican agricultural workers out of jobs, sending some of them into the United States. “That’s where that began, our illegal immigration problem,” he said.
· Tariffs impact on the U.S. ag sector. American Farm Bureau Federation President Zippy Duvall wrote (link) to President Trump Friday urging him to consider U.S. farmers before proceeding with tariff action. “American farmers and ranchers rely heavily on export markets for their business success, especially during these times of economic distress across rural America,” Duvall wrote. A targeted approach to tariffs, with specific exemptions for fuel and fertilizer imports, Duvall added, could “minimize negative repercussions” for farmers. Mexico and Canada account for around a third of all U.S. agriculture exports, buying $30 billion and $29 billion, respectively. China received around $26 billion of ag products last year, Duvall said.
U.S. farmers face rising costs amid proposed Canadian import tariff. The proposed 25% tariff on Canadian imports is expected to have significant repercussions for U.S. farmers, particularly in their access to potash and fertilizers. Key Impacts:
o Increased fertilizer costs: U.S. farmers rely on Canada for 85-86% of their potash. The tariff could raise fertilizer prices by $50 to $75 per ton, cutting into profit margins and potentially reducing crop yields.
o Short-term supply challenges: With spring planting nearing, farmers may struggle to meet urgent fertilizer needs, as domestic production accounts for less than 10% of U.S. demand. Many farmers have already purchased and applied fertilizer for the 2025 crop season, potentially mitigating immediate impacts, but farmers are unclear as to whether their undelivered fertilizer from Canada will be impacted.
o Long-term market shifts: Importers may seek alternative suppliers, and Canadian producers could absorb some costs, but a more significant price increase is expected for the 2026 crop season.
o Broader economic consequences: Higher fertilizer costs may lead to rising food prices, strain U.S./Canada agricultural ties, and provoke potential retaliatory trade measures from Canada.
· Survey quantifies Canadian farmers’ concern about impact of tariffs, potential trade war. New data from Real Agriculture’s RealAgristudies (link) confirms and quantifies the level of concern in Canada’s agriculture sector if the U.S. implements 25% tariffs on Canada on Feb. 1. Farmers who primarily produce livestock are slightly more likely to expect an impact on their farm business than mixed or primarily crop-focused farmers. Interestingly, there wasn’t much difference in how farmers see the potential impact when you compare age, farm size and geography.
Results of a survey of 660 Canadian farmers between Jan. 23 and Jan. 29 showed: 59% of respondents expect the proposed Trump tariffs will negatively impact their business. Only 7% feel there will be no effect. Another 7% don’t know if there will be an impact, while 27% see a possible impact of the Trump tariffs on their farm business.
When it comes to the likelihood of a trade war that significantly decreases Canadian agricultural exports, 29% of respondents feel that scenario is very likely, while 46% say it’s likely; 11% feel a trade war that hurts ag exports is unlikely.
Livestock producers tend to see a trade war as more likely (88%) than mixed (72%) or primarily crop producers (75%).
In terms of how Canada should respond to the tariffs, 34% of respondents said “all of the above” to including export tariffs on key items to the U.S., dollar for dollar retaliation and cutting off certain U.S. imports into Canada; 23% of farmers see an export tariff on key items like potash and energy as the best response as the best singular option.
· Tariff impact support for some industries. Canadian government officials have said that they would consider bailing out businesses and supporting workers who are most affected. Some industries would be swiftly disrupted: Agriculture, automobiles and energy suppliers, pillars of all three economies, would be upended by blanket tariffs.
Tariff aid for U.S. farmers. During her Senate confirmation hearing on Jan. 23, USDA Secretary nominee Brooke Rollins addressed concerns regarding potential tariffs and their impact on U.S. farmers. She acknowledged the possible adverse effects of such tariffs on the agricultural sector and emphasized her preparedness to implement support measures to mitigate these impacts. Rollins stated that she had consulted with former USDA Secretary Sonny Perdue, who oversaw $23 billion in trade aid to farmers during the previous Trump administration, and expressed readiness to execute a similar approach if necessary. She affirmed her commitment to working with the White House to ensure that any negative consequences of tariff implementations on farmers and ranchers are effectively addressed. While acknowledging the potential challenges posed by the proposed tariffs, Rollins conveyed confidence in Trump’s understanding of the agricultural community’s concerns. She described Trump as “the consummate dealmaker” who recognizes the significant support he has received from rural America and the agricultural sector.
U.S. farmers and various trade groups are very apprehensive about not only the potential negative impacts of tariffs on the U.S. ag sector, but what they do to garner new trade agreements, especially as they see China, Brazil, Russia and Ukraine announcing new trade accords or in the process of inking new ones.
Upshot: This latest tariff announcement underscores the escalating tensions in international trade policies and the potential for significant economic consequences if the disputes deepen. The tariff moves will test (1) the limits of Trump’s honeymoon period in his second term in the White House; (2) the U.S. economy and its tentative victory over inflation; (3) American consumers’ appetite to swallow fresh price increases; and (4) the patience of allies. The move against allies Canada and Mexico is a signal that no country is safe from his push to reshape global trade. Big experiment, big impacts, big risks, both economically and politically.