As President Donald Trump’s new tariffs targeting the nation’s three primary trading partners went into effect, China, Mexico, and Canada revealed their intentions to respond with retaliatory levies, raising the specter of a potentially catastrophic trade war. This developing scenario underscores the complexities of global trade and the profound consequences of Trump’s tariffs on trading partners.
China imposes tariffs
China has initiated tariffs of up to 15 percent on a variety of U.S. farm products and has blacklisted over 20 U.S. companies. This decisive action marks a significant escalation in the ongoing dispute between the world’s two largest economies. The sanctions specifically target some of the United States’ most critical exports to China, which include soybeans, meat, and grains.
Trump increases tariffs on Chinese products
Trump is raising tariffs on Chinese goods by 10 percentage points, elevating the total tax on certain Chinese imports to 45 percent. He is also implementing 25 percent tariffs on products from Mexico and Canada, posing a serious challenge to 31 years of free-trade agreements in North America. The tariffs officially took effect at 12:01 a.m. Eastern on Tuesday, following Trump’s announcement on Monday that he would not extend a month-long delay on his strategy.
Late Tuesday, indications emerged suggesting that the tariffs on Canada and Mexico might be reconsidered. Commerce Secretary Howard Lutnick indicated that Trump would “probably” reduce the tariffs on these two countries, which had been announced just 24 hours prior.
Read more: Trade wars deepen as China and Canada retaliate after Trump’s tariffs come into effect
Trudeau’s response to the trade war
During a news conference, Canadian Prime Minister Justin Trudeau criticized the “American trade war,” cautioning that “it is going to hurt all of us.” He dismissed Trump’s rationale for the tariffs, stating, “The excuse that he is giving for these tariffs today of fentanyl is completely bogus.” Trudeau emphasized that Canada would impose tariffs on approximately $107 billion worth of U.S. products, with around $21 billion affected immediately and the remainder set to take effect in 21 days.
In response, Trump posted on social media stating that U.S. tariffs “will immediately increase by a like amount” to any reciprocal tariffs imposed by Canada. Mexican President Claudia Sheinbaum announced on Tuesday morning that her government was also prepared to implement retaliatory tariffs, with an announcement expected at a rally in Mexico City.
Mexico’s economic dependency
Sheinbaum condemned an “offensive, defamatory and baseless communiqué” from the White House regarding Mexico, which claimed cartels “operate unhindered due to an intolerable relationship with the government of Mexico.” Given that about 80 percent of Mexico’s exports are directed to the United States, the tariffs could potentially trigger a recession. The integration of Mexico’s manufacturing sector with U.S. factories means that tariffs on Mexican goods may have unintended consequences for American companies, especially in the automotive sector.
Sheinbaum indicated that she and Trump had agreed to a phone call, likely on Thursday, to discuss the tariffs. If the tariffs stay in place, Mexico plans to announce countermeasures, including retaliatory tariffs, on Sunday. While Trump suggested he did not expect a strong response from Beijing, China’s State Council swiftly announced a 15 percent tax on U.S. goods, including chicken, wheat, and corn. Additionally, a 10 percent levy will be applied to various American products, such as soybeans, sorghum, and dairy items.
China’s strong stance
The Ministry of Foreign Affairs spokesman Lin Jian declared on Tuesday that if Washington “insists on starting a tariff war, a trade war or any kind of war, China will fight to the last.” China’s Commerce Ministry has previously characterized Trump’s tariffs as violations of international trade norms, exemplifying American “unilateralism and bullying.” These Chinese tariffs will take effect on March 10 and could impact billions of dollars’ worth of U.S. exports.
As the largest market for American agricultural products, China accounted for 17 percent of total U.S. agricultural exports in 2023, according to data from the U.S. Agriculture Department. Last year, China imported nearly $20 billion in U.S. farm goods that will now be subject to the newly imposed tariffs, with these items comprising approximately 80 percent of all U.S. agricultural exports to China.
Market reactions to tariff news
By late afternoon, futures for wheat and corn had declined by about 2 percent and 1 percent, respectively. The announcement of tariffs has caused significant turmoil in U.S. markets for two consecutive days. The Dow Jones Industrial Average dropped 670 points, or more than 1.5 percent, closing at 42,520.99. The S&P 500 fell by 1.2 percent to settle at 5,778.15, while the tech-heavy Nasdaq decreased by over 0.3 percent, finishing at 18,285.16.
In early February, Trump had imposed 25 percent levies on Canadian and Mexican goods, claiming they were not doing enough to curb the flow of fentanyl and migrants across U.S. borders. Although Canada is the source of a minimal amount of those flows, the president delayed the tariffs for a month as both countries worked to enhance border security. Nevertheless, Trump proceeded with the tariffs on Tuesday.
China’s countermeasures
Simultaneously, he enacted a 10 percent tax on Chinese imports, alleging that China had failed to control the influx of fentanyl into the United States. In retaliation, China responded with 15 percent tariffs on U.S. coal and liquefied natural gas, alongside a 10 percent tax on agricultural equipment and crude oil. Furthermore, China has imposed restrictions on exports of minerals used in high-tech manufacturing, launched an antitrust investigation of Google, and blacklisted two additional U.S. companies.
