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Trump triggers trade war, price hikes with tariffs on Canada, China and Mexico
Published by Global Banking & Finance Review®
Posted on March 4, 2025
7 min readLast updated: January 25, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on March 4, 2025
7 min readLast updated: January 25, 2026
Trump's tariffs on Canada, China, and Mexico trigger trade wars, affecting global markets and potentially raising prices for American consumers.
By David Lawder, David Ljunggren and Kylie Madry
WASHINGTON (Reuters) -U.S. President Donald Trump's new 25% tariffs on imports from Mexico and Canada took effect on Tuesday, along with a doubling of duties on Chinese goods to 20%, sparking trade wars that could slam economic growth and lift prices for Americans still smarting from years of high inflation.
The tariff actions, which look set to upend nearly $2.2 trillion in annual U.S. trade with its top three trading partners, went live at 12:01 a.m. (0501 GMT). Trump declared that all three countries had failed to do enough to stem the flow of the deadly fentanyl opioid and its precursor chemicals into the U.S.
Canadian Prime Minister Justin Trudeau described the tariffs as "a very dumb thing to do" and hit back with 25% tariffs on C$30 billion ($20.7 billion) worth of U.S. imports, including orange juice, peanut butter, wine, spirits, beer, coffee, appliances and motorcycles. Mexican President Claudia Sheinbaum vowed retaliation and said she would announce Mexico's response on Sunday in Mexico City's iconic Zocalo square.
Trump's action sparked a global stock selloff, with all major U.S. indexes lower and the Nasdaq falling into correction territory after European shares logged their biggest one-day loss in six months. Automakers, homebuilders, retailers and other tariff-sensitive stocks all took hits.
This helped push the yield on the safe-haven 10-year U.S. Treasury note to its lowest level since October. The dollar weakened against the Japanese yen and the Swiss franc, but the Mexican peso and Canadian dollar both weakened against the greenback.
RETALIATION STARTS
China responded immediately, announcing additional tariffs of 10%-15% on certain U.S. imports from March 10 and a series of new export restrictions for designated U.S. entities. Later it said it had raised complaints about the new measures with the World Trade Organization.
Beyond the actions he announced on Tuesday, Trudeau said Canada would impose tariffs on another C$125 billion of U.S. goods if Trump's tariffs were still in place in 21 days, likely to include motor vehicles, steel, aircraft, beef and pork. Canada also will challenge the U.S. tariffs under rules of the WTO and the U.S.-Mexico-Canada free trade agreement.
"They've chosen to launch a trade war that will, first and foremost, harm American families," Trudeau said of the Trump administration. "This is a very dumb thing to do."
Trudeau said Trump's fentanyl complaints were a "completely bogus" justification for the tariffs, as Canada had taken every possible action to shut down fentanyl trafficking. Trudeau, who will see a Liberal Party successor elected this weekend, said that Trump instead wants to severely weaken the Canadian economy to the point where it will consider annexation by the U.S.
Ontario Premier Doug Ford banned U.S. firms from bidding on provincial government contracts and said that if Trump's tariffs persist, he will apply a 25% surcharge to Ontario electricity exports to the U.S.
Trump threatened to hike tariffs on Canadian goods even higher, in an apparent reference to a U.S. plan to impose "reciprocal tariffs" on global trading partners on April 2.
"Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!" Trump wrote in a post on his private social media platform.
Mexico's Sheinbaum said on Tuesday there was "no reason, rationale or justification" for Trump's actions after Mexico took "decisive actions" against organized crime and fentanyl trafficking.
The European Union's executive Commission said it "deeply regrets" the decision, which risked disrupting global trade. Trump has vowed to impose reciprocal tariffs on EU goods early next month.
Television appearances from Trump cabinet officials, including Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent, did not indicate any immediate plans for further negotiations between the U.S. and its top trading partners.
PRICE HIKES
The tariffs were already sparking some U.S. price increases, running counter to Trump's election vow to bring down living costs for Americans.
Target CEO Brian Cornell told CNBC that the retail giant would increase prices "over the next couple of days" on some seasonal grocery products such as avocados from Mexico.
"If there's a 25% tariff, those prices will go up...certainly over the next week," Cornell said.
Electronics retailer Best Buy also warned of potential higher prices as the tariffs came into effect. Best Buy CEO Corie Barry told analysts on a call that China remains the top source of products sold by the company, with Mexico in second place.
The 20% tariff on Chinese imports will apply to several key Chinese electronics categories untouched by prior duties, including smart phones, laptops, video game consoles, smart watches and speakers and Bluetooth devices.
Barry said the price increases could play out over a longer period, as Best Buy typically carries about six weeks' worth of inventory.
"We estimate the tariffs could lead to a nearly $1,000 per household increase annually in the cost of goods," said Nationwide Mutual chief economist Kathy Bostjancic. "The strengthening dollar helps mitigate some of the inflation impact, which would otherwise be greater."
STACKING CHINA TARIFFS
The extra 10% duty on Chinese goods adds to a 10% tariff imposed by Trump on February 4 to punish Beijing over the U.S. fentanyl overdose crisis and comes on top of tariffs of up to 25% imposed on Chinese imports during Trump's first term.
Some of these products saw U.S. tariffs increase sharply under former president Joe Biden last year, including a doubling of duties on Chinese semiconductors to 50% and a quadrupling of tariffs on Chinese electric vehicles to over 100%.
China's retaliatory tariffs announced on Tuesday targeted a wide range of U.S. agricultural products including certain meats, grains, cotton, fruit, vegetables and dairy products.
Beijing also placed 25 U.S. firms under export and investment restrictions on national security grounds. Ten of these firms were targeted for selling arms to Taiwan.
U.S. farmers were hard hit by Trump's first-term trade wars, which cost them about $27 billion in lost export sales and conceded their share of the Chinese market to Brazil.
Agricultural Secretary Brooke Rollins told reporters in Washington that farmers and ranchers would eventually see greater prosperity from Trump's actions, adding: "His message, frankly, to the ag community is ‘trust me.’”
RECESSION FEARS
The tariffs on Mexican and Canadian products could have much deeper repercussions for a highly integrated North American economy that depends on cross-border shipments to build cars and machinery, refine energy and process agricultural goods.
"Today's reckless decision by the U.S. administration is forcing Canada and the U.S. toward recessions, job losses and economic disaster," Canadian Chamber of Commerce CEO Candace Laing said in a statement.
Even before Trump's tariffs announcement, U.S. data on Monday showed factory gate prices jumped to a nearly three-year high, suggesting that a new wave of tariffs could soon undercut production.
The Federal Reserve Bank of Atlanta's GDPNow model showed a stunning shift to a 2.8% U.S. GDP contraction in the first quarter, from a 2.3% estimated growth last week.
(Reporting by David Lawder and Andrea Shalal; additional reporting by David Shepardson in Washington, David Ljunggren and Ismail Shakil in Ottawa, Kylie Madry and Ana Isabel Martinez in Mexico City and Joe Cash in Beijing; Editing by Neil Fullick, Sharon Singleton and Alistair Bell)
Trump imposed a 25% tariff on imports from Mexico and Canada, effective immediately.
Canada's Prime Minister Justin Trudeau announced 25% tariffs on C$30 billion worth of U.S. imports in retaliation.
The tariffs could lead to a nearly $1,000 annual increase in household costs and risk pushing both the U.S. and Canada toward recessions.
The 20% tariff on Chinese imports will apply to key electronics categories, including smartphones, laptops, and video game consoles.
Retailers like Target and Best Buy warned that prices on certain products would rise due to the tariffs, with increases expected within days.
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