Update: tariffs on Canada have also been suspended for 30 days.
As he had repeatedly threatened on the campaign trail and since his election, Donald Trump signed an executive order this weekend under the International Emergency Economic Powers Act (IEEP) imposing tariffs on the US’s three largest trading partners, accounting for over a third of America’s total trade volume. The order places 25% duties on goods from Canada other than oil and gas, which are subject to a 10% duty, as well as 25% on imports from Mexico and 10% on goods from China. Following a preliminary border security agreement reached today with Mexico, with further negotiations on security and trade issues ongoing, the tariffs on Mexican products have been suspended for one month. The order also eliminates the de minimis exception for shipments valued below $800 subject to the tariffs, impacting online retailers like China’s Temu and Shein.
Barring last-minute breakthroughs, the Canada and China tariffs are set to take effect tomorrow, February 4. Implementation details can be found in Customs and Border Protection notices for China and Canada currently pending publication in the Federal Register.
Notably, these tariffs have not been presented as a response to any disputes actually concerning international trade. Instead, Trump has repeatedly stated that they are intended to force cooperation from the affected countries on stemming the flow of drugs, particularly fentanyl, and illegal immigrants into the United States. Taken at face value, this is somewhat puzzling: unless Trump’s talk of annexing Canada as America’s “51st state” is to be taken seriously, it is unclear what the president actually wants from Canada, as both immigration and drug flows at the US northern border are far smaller than those from Mexico.
Canada promptly responded with a list of US products including fruits and vegetables, juices, alcoholic beverages, household appliances, and sporting goods subject to its own retaliatory 25% tariff, to be implemented this month in two stages. The country’s Department of Finance has published a complete list of the US products affected. Prime Minister Justin Trudeau also said Canada will file a complaint with the World Trade Organization (WTO). Canadian sports fans’ booing of the US national anthem at weekend hockey and basketball games may signal a shift in consumer sentiment against American brands in favor of “buy Canadian”. Several provinces began removing US spirits and wine from liquor store shelves over the weekend. Ontario premier Doug Ford announced that his province had canceled a CAD 100 million contract with Elon Musk’s Starlink and that US companies would be excluded from provincial procurement contracts until the tariffs are removed.
According to Mexican president Claudia Sheinbaum, 10,000 Mexican National Guard troops will be deployed to the border region, while the United States has agreed to combat trafficking of American firearms to Mexico. She had previously stated that her country was prepared to counter the Trump tariffs with “Plan B”, an as-yet unspecified package of tariff and non-tariff measures.
China’s response to the tariffs has been more muted, with leaders promising to complain to the WTO, but also preparing to resume discussions and present new proposals to increase imports and investment and to reduce exports of fentanyl precursors under the Phase One trade agreement with the United States, signed in 2020 but never fully implemented.
While theoretically importers facing tariff costs could accept lower margins or negotiate lower prices with foreign suppliers, in practice most of the cost of the tariffs levied during Trump’s previous term was passed on to consumers.
Should negotiations fail and an extended trade war ensue, the US holds the upper hand against each individual country, but could face difficulties in a multi-front war, especially if tariffs are also levied on the European Union as Trump said Sunday “will definitely happen”. Several European heads of state expressed defiance after a summit today, warning that hostile measures between the US and the EU would only benefit China. Mexico and the EU updated an existing agreement in January to ease trade in food and beverages, suggesting opportunities for coordination among the target countries.