Newly sworn in US President has sparked what is being termed as fears of a “trade war” Donald Trump after imposing tariffs on products from Canada, Mexico and China, citing a “major threat” posed by illegal immigration and drug trafficking.
After Donald Trump’s move to exercise emergency economic powers to implement the tariffs, Canadian and Mexican goods exported to the US will face a 25 per cent tariff, with energy resources from Canada subject to a reduced 10 per cent levy, starting Tuesday.
Additionally, China, which already faces tariffs, will incur an extra 10 per cent duty on its goods.
Canada and Mexico ordered retaliatory tariffs on American goods in response to sweeping tariffs imposed by President Donald Trump, and businesses and consumers in both countries questioned Sunday how the new trade war might affect them.
Canada initially ordered tariffs of 25% on American imports starting Tuesday, including beverages, cosmetics and paper products worth 30 billion Canadian dollars ($20 billion). A second list of goods was to be released soon, including passenger vehicles, trucks, steel and aluminum products, certain fruits and vegetables, beef, pork, dairy products, aerospace products and more. Those goods were estimated to be worth 125 billion Canadian dollars ($85 billion).
“We can play the game all they want,” Trump said. He said he plans to speak with his Canadian and Mexican counterparts on Monday.
Mexico has so far said only that it will impose retaliatory tariffs, without mentioning any rate or products.
Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum spoke by phone Saturday after Trump’s administration imposed the new tariffs — 25% on goods from Canada and Mexico, with a lower rate of 10% for Canadian oil, and 10% on imports from China.
What is a trade war?
A trade war is an economic conflict between two countries that arises when one country responds to another’s perceived unfair trade practices by imposing restrictions, like tariffs, on imports.
Similar to issuing sanctions against a country, a trade war uses economic means to lodge a protest against a country or at times protect your country’s domestic goods from foreign competition.
However, without adequate ability to produce domestically, issuing high tariffs on imports could backfire on a country’s citizens who would have to pay higher prices for goods.
The most recent example of actions that could lead to a trade war, needless to say, has been the tariffs introduced by US President Donald Trump on countries such as China, Mexico and Canada.
US tariffs and their effect
President Donald Trump announced a 25 per cent tariff on imports from Canada and Mexico, his neighbouring nations, due to the flow of fentanyl and undocumented immigrants into America from their shared borders. An additional 10 per cent duty had been levied on Chinese imports for its role in fentanyl supply as well.
Financial markets that had anticipated trade wars could be avoided are recalibrating the risks of a sharp global slowdown, resurgent inflation and a pause to Federal Reserve rate cuts following Donald Trump’s tariffs on top U.S. trading partners.
The U.S. President’s weekend orders for additional levies of 25% on imports from Mexico and most goods from Canada, as well as 10% on goods from China, jolted markets that had assumed Trump was mostly bluff and bluster.
Initial market moves eased after Trump said he would pause new tariffs on Mexico for one month and engage in further negotiations.
“So we’re going to delay this for a month, which just leaves the tariff gun loaded but not fired,” said Art Hogan, chief market strategist at B. Riley Wealth in Boston. “Because if he just went ahead and plowed this forward, you have a real opportunity for some sloppy markets.”
Trump was scheduled to speak later on Monday with Canadian Prime Minister Justin Trudeau, who has announced retaliatory measures.
