Trump Drops 25% Duties on Canada, Mexico, Fueling Trade War
President Donald Trump laid down the hammer on Mexico and Canada Tuesday, hitting the United States’ North American neighbors with 25-percent duties on a range of products and services after a month-long deferral failed to lead to a resolution.
Eleventh-hour behind the scenes talks between the trade partners could not stop the president from moving forward with his plans to penalize the nations with new tariffs under the International Emergency Economic Powers Act (IEEPA). The duties went into effect at 12:01 am.
“While President Trump gave both Canada and Mexico ample opportunity to curb the dangerous cartel activity and influx of lethal drugs flowing into our country, they have failed to adequately address the situation,” the White House wrote in a fact sheet on the decision.
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Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum made repeated overtures in recent days to try and stave off the trade action, with Sheinbaum saying in a Monday morning press conference that Mexico has taken in nearly 20,000 deportees from the U.S. since Trump took office. Nonetheless, Trump confirmed his plans from the White House on Monday, saying there was “no room left for Mexico or for Canada” to negotiate.
Notably, though, the president amended his previous executive order to stipulate that de minimis trade exception will remain in place for both countries until “adequate systems are in place” to handle the processing of tariff revenue for small shipments worth $800 or less.
Trudeau responded swiftly, saying, “Canada will not let this unjustified decision go unanswered.” The country plans to immediately hit back with 25-percent counter-duties on about $100 billion-worth of U.S.-made products. Rolled out in two tranches, the first $20-million list will include apparel, alcohol and certain household products (mostly made in conservative states), and the second $90-billion wave will be announced in about three weeks, the prime minister said.
The Trump administration also confirmed in a Monday memo that it would up punitive duties on China from the 10 percent announced in early February to 20 percent due to a determination that “the PRC has not taken adequate steps to alleviate the illicit drug crisis through cooperative enforcement actions.”
China’s government retaliated expeditiously, announcing 15-percent duties on American agricultural products like cotton, chicken, corn and wheat, as well as 10-percent tariffs on pork, beef, dairy products, seafood, soybeans and sorghum, all of which will take effect March 10. The country also added 10 U.S. corporations that develop defense technology to its “unreliable entity” list, and 15 firms to an “export control” list.
At a morning press conference on Tuesday, China Foreign Ministry Spokesperson Lin Jian told reporters that the country would not be bullied or intimidated by Trump’s trade aggression.
“Anyone using maximum pressure on China is picking the wrong guy and miscalculating,” he said. “If the U.S. truly wants to solve the fentanyl issue, then the right thing to do is to consult with China on the basis of equality, mutual respect and mutual benefit to address each other’s concerns. If the U.S. has other agenda in mind and if war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
Trump’s confirmation that the duties would indeed move forward was enough to send stocks into a free fall on Monday. The Dow Jones Industrial Average dropped 649.6 points by late afternoon (1.48 percent). The S&P 500 saw its worst day since December, with the broad index falling 1.76 percent to end at 5,849.72.
During an earnings call Tuesday morning, Target intimated that the duties on Mexico would force it to raise prices on certain produce as soon as this week. Alongside rising consumer uncertainty, the added tariffs on all countries will put “meaningful” profit pressure on the big box retailer’s first-quarter sales, CEO Brian Cornell said.
The retail environment has been bracing for new duties since the president signed the decree for the Mexico and Canada tariffs in early February, though he promptly pushed out their start date for a month with the intent of continuing bilateral talks with both Trudeau and Sheinbaum, putting firms in a holding pattern with regard to future sourcing strategies.
Both countries made concessions and commitments in an effort to avoid what has now become an all-out trade war.
Canada committed to a $1.3-billion border security program that would include 10,000 new personnel and programs to constrain migration. While just 43 pounds of fentanyl—about 1 percent of the volume that enters the U.S. annually—comes in through Canada, and the country’s illegal border crossings pale in comparison to the volume seen at the Southern border, Trudeau appointed a “Fenanyl Czar” and complied with the Trump administration’s mandate to list cartels as terrorist organizations.
Mexico, too, committed 10,000 Mexican National Guard troops to its border with the U.S., imposed new duties on foreign inputs for its apparel supply chain, and is mulling targeting China with wide-ranging tariffs at the behest of the Trump administration.
