Trump launches trade war with tariffs on Mexico, Canada and China

By Andrea Shalal, Jarrett Renshaw and David Lawder

(Reuters) -U.S. President Donald Trump on Saturday ordered sweeping tariffs on goods from Mexico, Canada and China, demanding they stanch the flow of fentanyl - and illegal immigrants in the case of Canada and Mexico - into the United States, kicking off a trade war that could dent global growth and reignite inflation.

Mexico and Canada, the top two U.S. trading partners, immediately vowed retaliatory tariffs, while China said it would challenge Trump's move at the World Trade Organization and take other "countermeasures."

In three executive orders, Trump imposed 25% tariffs on Mexican and most Canadian imports and 10% on goods from China, starting on Tuesday.

He vowed to keep the duties in place until what he described as a national emergency over fentanyl, a deadly opioid, and illegal immigration to the U.S. ends. The White House provided no other parameters for determining what might satisfy Trump's demands.

Responding to concerns raised by oil refiners and Midwestern states, Trump imposed only a 10% duty on energy products from Canada, with Mexican energy imports facing the full 25% tariff.

Canadian Prime Minister Justin Trudeau said Canada would respond with 25% tariffs against $155 billion of U.S. goods, including beer, wine, lumber and appliances, beginning with $30 billion taking effect Tuesday and $125 billion 21 days later.

Trudeau warned U.S. citizens that Trump's tariffs would raise their grocery and gasoline costs, potentially shutting down auto assembly plants and limiting supplies of goods such as nickel, potash, uranium, steel and aluminum. He urged his own citizens to forego travel to the U.S. and to boycott U.S. products.

Mexican President Claudia Sheinbaum, in a post on X, said she was instructing her economy minister to implement retaliatory tariffs but gave no details.

Canada and Mexico said they were working together to face Trump's tariffs.

China’s Commerce Ministry did not specify its planned countermeasures. Its statement left open the door for talks between Washington and Beijing.

“China hopes that the US will view and handle its own fentanyl and other issues in an objective and rational manner,” it said, adding that Beijing wanted to “engage in frank dialogue, strengthen cooperation and manage differences.”

A White House fact sheet said the tariffs would stay in place "until the crisis alleviated," but gave no details on what the three countries would need to do to win a reprieve.

At nearly $100 billion in 2023, imports of crude oil accounted for roughly a quarter of all U.S. imports from Canada, according to U.S. Census Bureau data.

Automakers would be particularly hard hit, with new steep tariffs on vehicles built in Canada and Mexico burdening a vast regional supply chain where parts can cross borders several times before final assembly.

The tariff announcement makes good Trump's repeated threat during the 2024 presidential campaign and since taking office, defying warnings from top economists that a new trade war with the top U.S. trade partners would erode U.S. and global growth, while raising prices for consumers and companies.

Republicans welcomed the news, while industry groups and Democrats issued stark warnings about the impact on prices.

National Foreign Trade Council President Jake Colvin said Trump's move threatened to raise the costs of "everything from avocados to automobiles" and urged the U.S., Canada and Mexico to find a quick solution to avoid escalation.

The three countries should work together to "gain a competitive advantage and facilitate American companies' ability to export to global markets," Colvin said in a statement.

Provincial officials and business executives in Canada also reacted with outrage, calling for forceful tariffs on imports from the U.S.

Roughly 90 minutes after Trump's announcement, the American national anthem was booed in the nation's capital Ottawa ahead of the opening face-off at the Ottawa Senators and Minnesota Wild National Hockey League game. The Senators won 6-0.

U.S. tariff collections are set to begin at 12:01 a.m. EST (0501 GMT) on Tuesday, according to Trump's written order. But imports that were loaded onto a vessel or onto their final mode of transit before entering the U.S. before 12:01 a.m. Saturday would be exempt from the duties.

Trump declared the national emergency under the International Emergency Economic Powers Act and the National Emergencies Act to back the tariffs, which allow the president sweeping powers to impose sanctions to address crises.

Trade lawyers said Trump was once again testing the limits of U.S. legislation and the tariffs could face legal challenges, while Democratic lawmakers Suzan DelBene and Don Beyer decried what they called “a blatant abuse of executive power."

White House officials said there would be no exclusions from the tariffs and if Canada, Mexico or China retaliated against American exports, Trump would likely increase the U.S. duties.

Nova Scotia's Premier Tim Houston said he directed that all alcohol imported from the U.S. be removed from the province's store shelves.

The White House officials said that Canada specifically would no longer be allowed the "de minimis" U.S. duty exemption for shipments under $800. The officials said Canada, along with Mexico, has become a conduit for shipments of fentanyl and its precursor chemicals into the U.S. via small packages that are not often inspected by customs agents.

LONG-PROMISED TARIFFS

Trump spoke extensively about the tariffs on Friday, acknowledging they could lead to disruptions and hardships for Americans. He said additional tariffs were planned against steel, aluminum, semiconductor chips and pharmaceuticals.

The Republican president was not scheduled to speak to reporters about the tariffs after the announcement.

Trump's tariff move was led by Deputy Chief of Staff Stephen Miller, a forceful hawk on illegal immigration, and Trump's nominee to head the Commerce Department, Howard Lutnick, who flew to Florida with Trump on Friday, a White House official said.

Less than two weeks into his second term, Trump is upending the norms of how the United States is governed and interacts with its neighbors and wider world.

A model gauging the economic impact of Trump's tariff plan from EY Chief Economist Greg Daco suggests it would reduce U.S. growth by 1.5 percentage points this year, throw Canada and Mexico into recession and usher in "stagflation" at home.

"Steep tariff increases against U.S. trading partners could create a stagflationary shock - a negative economic hit combined with an inflationary impulse - while also triggering financial market volatility," Daco wrote on Saturday.

That volatility was evident on Friday, when the Mexican peso and Canadian dollar both slumped after Trump vowed to fulfill his threats. U.S. stock prices also fell and Treasury bond yields rose.

(Reporting by Jarrett Renshaw in Palm Beach and David Lawder and Andrea Shalal in Washington; Editing by Dan Burns, Himani Sarkar, Daniel Wallis, Alistair Bell and William Mallard)