US President Donald Trump on Saturday signed an order to impose sweeping tariffs on imports from Mexico, Canada and China, drawing swift retaliation and an undeniable sense of betrayal from the country's North American neighbours as a trade war erupted among the longtime allies.
In a social media post, the Republican president justified the tariffs as necessary to “protect Americans,” urging Mexico, Canada, and China to do more to curb the manufacture and export of illicit fentanyl and for Canada and Mexico to tackle illegal immigration into the US.
Starting Tuesday, Canadian and Mexican exports to the US will face a 25% tariff, with Canadian energy exports subject to a lower 10% rate. China, which already faces varying duties, will see an additional 10% tariff.
The decision prompted all three countries to vow retaliatory tariffs, escalating the risk of further economic disruption.
Canadian Prime Minister Justin Trudeau said Ottawa will respond to US tariffs with 25% levies on selected American goods, while Mexican President Claudia Sheinbaum also announced retaliatory tariffs.
China said it "firmly opposes" new tariffs, vowing to take "corresponding countermeasures to resolutely safeguard our own rights and interests."
The tariffs threaten to disrupt supply chains across industries, including energy, automobiles, and food. Should the tariffs remain in place, they could exacerbate inflation, undermining Trump’s promise to lower prices for consumers, particularly in groceries, gasoline, housing, and autos.
Trump invoked the International Emergency Economic Powers Act, with the White House citing "the extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl," as a national emergency.
The executive order allows for an escalation of US tariffs in response to retaliatory measures from the affected countries, raising the prospect of deeper economic turmoil.
Economists warned the heavy tariffs, combined with retaliatory measures, could push Canada and Mexico into recession, while the US economy could also face a shallow downturn. The announcement is expected to increase political uncertainty and add inflationary pressures, with investors bracing for potential supply chain disruptions.
Analysts have raised concerns that US tariffs on Canadian and Mexican imports may conflict with the United States-Mexico-Canada Agreement (USMCA), a trade deal Trump signed during his first term. Some speculated that Trump’s move could be a negotiating tactic to secure concessions ahead of the 2026 review of the USMCA.
North American allies hit back
"The actions taken today by the White House split us apart instead of bringing us together," Canadian Prime Minister Justin Trudeau said in a somber tone as he announced that his country would put matching 25% tariffs on up to Can$155 billion ($106 billion) in US imports.
The tariffs will apply to "everyday items" such as American beer, wine and bourbon as well as fruits, vegetables, consumer appliances, lumber and plastics, he added -- "with much, much more." The first round of tariffs would target Can$30 billion worth of US goods on Tuesday followed by further tariffs on Can$125 billion worth of products in three weeks.
Trudeau channeled the betrayal that many Canadians are feeling, reminding Americans that Canadian troops fought alongside them in Afghanistan and helped respond to myriad crises from wildfires in California to Hurricane Katrina.
"We were always there standing with you, grieving with you, the American people...We're certainly not looking to escalate. But we will stand up for Canada, for Canadians, for Canadian jobs," he said.
Trudeau said the trade conflict will have "real consequences" for Canadians but also for Americans, including job losses, higher costs for food and gasoline, potential shutdowns of auto assembly plants, and impeded access to Canadian nickel, potash, uranium, steel and aluminum.
Meanwhile, Mexico's Claudia Sheinbaum angrily rejected Trump's accusation that her government has an alliance with drug cartels, and vowed to retaliate against the US' sweeping tariffs.
Sheinbaum said she had told her economy minister, Marcelo Ebrard, "to implement Plan B that we have been working on, which includes tariff and non-tariff measures in defense of Mexico's interests."
Ebrard called Trump's tariffs a "flagrant violation" of the United States' free trade agreement with Mexico and Canada.
Sheinbaum also hit back after Washington accused her government of having an "intolerable alliance" with drug trafficking groups.
"We categorically reject the slander made by the White House against the Mexican government about alliances with criminal organizations," Sheinbaum wrote on social media platform X.
"If there is such an alliance anywhere, it is in the US gun shops that sell high-powered weapons to these criminal groups," she added.
"If the United States government and its agencies wanted to address the serious consumption of fentanyl in their country, they can combat the sale of narcotics on the streets of their main cities, which they don't do, and the money laundering generated by this illegal activity that has done so much harm to their population," Sheinbaum said.
China hits back, to move WTO against US
Meanwhile, China vowed to take "corresponding countermeasures" to safeguard its rights and interests in response to Trump's sweeping tariffs.
In a statement on Sunday, China's commerce ministry slammed Washington's "erroneous practices", saying Beijing was "strongly dissatisfied with this and firmly opposes it."
The ministry said Beijing would file a lawsuit at the World Trade Organization, arguing that "the unilateral imposition of tariffs by the United States seriously violates WTO rules."
It added that the duties were "not only unhelpful in solving the US's own problems, but also undermine normal economic and trade cooperation."
"China hopes that the United States will objectively and rationally view and deal with its own issues like fentanyl, rather than threatening other countries with tariffs at every turn," the ministry said.
It said Beijing "urges the US to correct its erroneous practices, meet China halfway, face up to its problems, have frank dialogues, strengthen cooperation and manage differences on the basis of equality, mutual benefit and mutual respect."
In a separate statement, China's foreign ministry said "there are no winners in a trade war or tariff war."
"The practice of imposing additional tariffs is not constructive and will inevitably affect and damage future bilateral cooperation on drug control," a ministry spokesperson said.
China's economy remains heavily reliant on exports to drive growth despite official efforts to raise domestic consumption -- making its leaders reluctant to change the status quo.
Trade between China and the United States -- the world's two largest economies -- is vast, totalling more than $530 billion in the first 11 months of 2024, according to Washington.
Over that same period, sales of Chinese goods to the United States totalled more than $400 billion, second only to Mexico.
According to the Peterson Institute of International Economics (PIIE), China is the dominant supplier of goods from electronics and electrical machinery to textiles and clothing.
But a yawning trade imbalance -- $270.4 billion for January to November last year -- has long raised hackles in Washington. So has China's vast state support for its industries, sparking accusations of dumping, as well as its perceived mistreatment of US firms operating in its territory.
What Will Trump's Tariffs Impact?
Trump’s tariffs on Canada and Mexico are set to disrupt supply chains, with industries bracing for higher costs on products from automobiles to avocados.
In 2023, US imports from both countries totalled nearly $900 billion, with trade deeply integrated under their shared agreement. The new tariffs will complicate operations for businesses spanning the three nations.
Analysts predict that the 25% tariffs will hit the automobile and electronics sectors hardest. Canadian energy exports will face a lower 10% tariff, but this marks a change, as US tariffs had previously not been imposed on Canadian oil.
Mexico and Canada also represent key sources of US agricultural imports, meaning the tariffs could raise prices on foods such as avocados and tomatoes.
Canada: Energy, Autos
Nearly 80% of Canadian exports, worth $410 billion, go to the US, according to Statistics Canada. The tariffs are expected to hit Canada’s auto and energy sectors, which make up over 40% of exports to the US.
Canada’s energy exports consist mainly of crude oil and natural gas, while Ontario’s auto sector faces challenges as “various parts cross the border multiple times before ending up in a finished product,” said Robert Kavcic at Bank of Montreal.
Canada is also a major supplier of construction materials. Tariffs on softwood lumber and gypsum, key materials in housing, could increase costs. “Tariffs on lumber and other building materials increase the cost of construction and discourage new development,” said National Association of Home Builders chairman Carl Harris.
Mexico: Autos, Electronics
Mexico exports 84% of its goods to the US, totalling over $510 billion, according to its National Institute of Statistics. The auto and electronics sectors are expected to feel the greatest impact, as nearly half of their production goes to the US, according to analysts from Capital Economics.
The tariffs will also affect food imports. Mexico supplied 63% of US vegetable imports and nearly half of US fruit and nut imports in 2023, according to the US Department of Agriculture. More than 80% of US avocados come from Mexico, meaning higher import costs could raise prices for items like guacamole.
Mexico’s faces recession
Analysts warn the tariffs could also push up US energy prices. Nearly 60% of US crude oil imports come from Canada, according to the Congressional Research Service. The tariffs could severely impact Mexico’s economy.
US buyers account for over 80% of Mexico’s exports, and with exports to the US making up about 20% of its GDP, Capital Economics warns that the tariffs could push both Mexico and Canada into recession by year’s end.
Mexico’s GDP could fall by 4% in 2025 if the tariffs remain in place all year, said Gabriela Siller, head of economic analysis at Banco BASE. “If this tariff lasts for several months, the Mexican economy will fall into a severe recession,” she added.
US: Inflation surge, poor investment
Economists forecast a slowdown in growth as inflation spikes, consumer spending weakens, and investment activity stalls due to the tariff war.
"The tariff action announced today makes clear that our friends, neighbours and Free Trade Agreement partners are in the line of fire," said Wendy Cutler, vice president at the Asia Society Policy Institute and a former US trade negotiator.
"The move today is an opening salvo on the tariff front," she told AFP.
Economic integration between the United States, Mexico and Canada -- who share a trade pact -- means stiff tariffs will have "a strong and immediate impact" in all three countries, she said.
Imposing sweeping tariffs on the three biggest US trading partners in goods carries risks for Trump, who won November's election partly due to public dissatisfaction over the economy.
Higher import costs would likely "dampen consumer spending and business investment," said EY chief economist Gregory Daco.
He expects inflation would rise by 0.7% in the first quarter this year with the tariffs in place, before gradually easing.
"Rising trade policy uncertainty will heighten financial market volatility and strain the private sector, despite the administration's pro-business rhetoric," Daco said.
Trump's supporters have downplayed fears that tariffs would fuel inflation, with some suggesting his planned tax cuts and deregulation measures could boost growth instead.