Trump imposes 25% tariffs on Canada, Mexico sparking new fears of trade war

Washington: US President Donald Trump said on Monday that there was no chance for Mexico or Canada to prevent 25 per cent tariffs from taking effect on Tuesday, sending financial markets reeling on the prospect of new economic barriers in North America.

"They're going to have to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they no tariffs," Trump said at the White House. He said there was "no room left" for a deal that would avert the tariffs by curbing fentanyl flows into the United States.

Trump also said reciprocal tariffs would take effect on April 2 on countries that impose duties on US products.

US stock indexes extended their losses after Trump's comments. The Dow Jones Industrial Average was down 1.58 per cent for the day, the S&P 500 was down 1.78 per cent and the Nasdaq Composite was down 2.47 per cent.

CEOs and economists say the action, covering more than $900 billion worth of annual US imports from its southern and northern neighbors would deal a serious setback to the highly integrated North American economy.

The tariffs are scheduled to take effect at 12:01 am EST (0501 GMT) on Tuesday. At that point Canada and Mexico would face tariffs of 25 per cent, with 10 per cent for Canadian energy. Mexican officials did not immediately respond to requests for comment.

Canadian Foreign Minister Melanie Joly told reporters that Ottawa would be ready to respond. "There's a level of unpredictability and chaos that comes out of the Oval Office, and we will be dealing with it," she said.

Speaking on CNN, US Commerce Secretary Howard Lutnick said both countries had made progress on border security but needed to do more to curb fentanyl flows into the US to reduce deaths from the opioid drug.

Trump is also expected on Tuesday to raise fentanyl-related tariffs on Chinese imports to 20 per cent from 10 per cent currently, unless Beijing ends fentanyl trafficking into the US. Lutnick did not mention any potential changes to these duties, which would affect about $439 billion worth of annual imports.

Mexico's response plans

Mexico, after avoiding the first round of Trump's tariffs by striking a last-minute deal to send thousands of troops to its northern border, has stepped up anti-drug efforts and hinted at new measures on imported Chinese goods.

President Claudia Sheinbaum, in a press conference on Monday before Trump made his remarks, said her government was calm as it awaited Trump's decision, but that Mexico but will respond if tariffs are imposed.

"We have a plan B, C, D," Sheinbaum said, without giving any details. She added that coordination with the US on trade and fentanyl trafficking has been "very good."

According to the Centers for Disease Control and Prevention, 72,776 people died from synthetic opioids in 2023 in the US, chiefly from fentanyl.

Navarro: Trump unwavering

White House trade adviser Peter Navarro told CNBC on Monday that the inflationary impact from any tariffs would be "second-order small, so I don't see the president wavering on any of this, because he knows in order to get to a world in which America is strong and prosperous, with real wages going up and (more) factory jobs. This is the path that he's chosen."

Trump on Saturday added another trade action to a cascade of tariff announcements over the past month, opening a national security investigation into imports of lumber and wood products that could result in steep tariffs. Canada, already facing 14.5 per cent US tariffs on softwood lumber, would be hit particularly hard.

During the prior week Trump ordered the revival of a tariff probe on countries that levy digital services taxes, proposed fees of up to $1.5 million every time a Chinese-built ship enters a US port, and launched a new tariff investigation into copper imports.

These come in addition to his plans to determine higher US "reciprocal tariffs" to match the tariff rates of other countries and offset their other trade barriers, a move that could hit the European Union hard over the value added taxes charged by EU countries.

But Trump's "tariffs on steroids" agenda may keep inflation higher and could tip the global economy into recession, warned Desmond Lachman, a senior fellow at the conservative American Enterprise Institute.

Package orders

The White House late on Sunday issued technical orders from Trump related to tariffs on Mexico and Canada, declaring that low-value packages from the two countries cannot enter the US duty-free under the "de minimis" exemption for shipments under $800. The ban will take effect once the Commerce Department determines that adequate screening measures take place, the order said.

Trump on February 4 suspended the de minimis exclusion for low-value Chinese packages, but the US Customs and Border Protection Agency had to pause the suspension because packages were piling up at US airports without a way to screen them. Fentanyl traffickers have exploited the de minimis package exemption to ship fentanyl and its precursor chemicals into the US, and officials say the packages often enter unscreened.