Trump’s Widening Tariff War Sparks Quick Retaliation on US (5)

President Donald Trump delivered on his threat to hit Canada and Mexico with sweeping import levies and doubled an existing charge on China, spurring swift reprisals that plunged the world economy into a deepening trade war.

The new US tariffs — 25% duties on most Canadian and Mexican imports and raising the charge on China to 20% — apply to roughly $1.5 trillion in annual imports, an expansive move signaling to markets that the Republican president is committed to inflicting economic pain to generate fresh revenue and create domestic manufacturing jobs.

Canada hit back with phased levies on $107 billion worth of US goods while China imposed tariffs of as high as 15%, mainly on American agricultural shipments. Canadian Prime Minister Justin Trudeau on Tuesday said a trade war is “a very dumb thing to do.”

“What he wants is to see a total collapse of the Canadian economy — because that’ll make it easier to annex us,” Trudeau said at a news conference. “They’ve chosen to launch a trade war that will first and foremost harm American families. They’ve chosen to sabotage their own agenda that was supposed to usher in a new golden age for the United States.”

Trump responded with a social media post that called him “Governor Trudeau” and said that with Canada’s retaliation, “our Reciprocal Tariff will immediately increase by a like amount!”

Mexican President Claudia Sheinbaum said Tuesday her government would announce tariffs and other measures on Sunday in response to Trump’s new charges. She said she would likely speak with Trump on Thursday.

The moves — before Trump’s prime-time address Tuesday to Congress to lay out his second-term priorities — mark a new phase in Trump’s broadening economic and diplomatic reset of America’s place in the world. Confirmation of the levies lays to rest doubts the US president would actually follow through on his repeated threats to upend global economic ties to counter what he casts as imbalanced trade.

Stocks were hammered across the board amid concerns about the effects of a trade war on the global economy. The S&P 500 fell as much as 2%, erasing its $3.4 trillion post-election rally, before paring those losses.

“We are in a new era where the mantra is to protect markets and the US is leading in this,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis. “China retaliated focusing on Trump’s staunchest voters in the agriculture sector. But that is not going to stop him.”

Treasury Secretary Scott Bessent on Tuesday downplayed the market selloff.

“Over the medium term, which is what we’re focused on, it’s a focus on Main Street. Wall Street’s done great, Wall Street can continue to do fine, but we have a focus on small business and consumers,” Bessent said on Fox News.

The tariffs bring American import levies to their highest average level seen since 1943, according to the Budget Lab at Yale. That would lead to as much as $2,000 in additional costs for US households. It also will mean significantly slower economic growth in the US, especially if other countries retaliate, according to a report published Monday.

GLOBAL REACT: Threats Turn to Action as Tariffs Hit 1940s Level

“The lesson of the first few weeks of Trump’s presidency is that these things can change depending on the concessions countries are willing to make,” Maeva Cousin and Rana Sajedi of Bloomberg Economics wrote in a research note Tuesday. “But if they endure, the impact will be significant.”

More to Come

And Trump has indicated more tariffs are to come, including in April reciprocal tariffs on all US trading partners that have their own levies or other barriers on American products, as well as sectoral taxes of 25% on cars, semiconductors and pharmaceuticals. Those tariffs are also poised to be cumulative — in addition to any across-the-board tariff on a particular nation.

Trump has also said a 25% tariff is in the works for the European Union and is investigating levies on copper and lumber imports. Steel and aluminum tariffs are also set to take effect on March 12, further impacting Canada and Mexico.

European Commission spokesman Olof Gill said the US’s decision threatens to disrupt global trade, hurt economic partners and cause uncertainty. “These tariffs threaten deeply integrated supply chains, investment flows, and economic stability across the Atlantic,” he said in an emailed statement.

EUROPE INSIGHT: Trump Tariff Threat Puts 1.5% of EU GDP at Risk

In the run-up to the deadline, US equities tumbled by the most this year, while Treasury yields earlier fell to the lowest in four months and oil dropped to a three-month low.

The Canadian government’s first stage of retaliation was 25% tariffs on about C$30 billion ($20.6 billion) worth of goods from US exporters to go into effect at the same time as the US levies. A second round at the same rate will be placed on C$125 billion of products in three weeks — a list that will include big-ticket items like cars, trucks, steel and aluminum.

Commerce Secretary Howard Lutnick nonetheless signaled Tuesday that more tariffs are coming for Canada, objecting to the country’s dairy tariffs, as well as its national sales tax and integrated auto supply chains. Those factors will be taken into account as the Trump administration calculates its reciprocal charges on the US’s northern neighbor.

“He will be addressing all of those products in Canada,” Lutnick said on CNBC. “The idea is that’s going to be reset, but that starts April 2.”

Trump later Tuesday reiterated his criticism of restrictions on American banks doing business in Canada, another signal he is unwilling to back down.

The 25% tariffs taking effect apply to all imports from Canada and Mexico, except for Canadian energy which will be taxed at a 10% rate. Trump’s Canada and Mexico tariffs will have particularly stark implications for the auto sector, an industry with supply chains that crisscross the three countries.

Trump’s administration did, however, delay the removal of a so-called “de minimis” exemption for low-cost goods until they develop a plan for collecting revenue on those imports. That means that, for now, Canadians and Mexicans can continue to ship low-cost goods across the border without a tariff.

Trump initially announced tariffs on the North American neighbors and China in February, intended to punish them for what he cast as a failure to block flows of undocumented migrants and illegal drugs, such as fentanyl, across US borders. But while a 10% levy on Chinese imports took effect last month, Trump delayed import taxes on Canada and Mexico until March 4 — giving them time to negotiate a reprieve. That let off didn’t last.

“Both nations’ failure to arrest traffickers, seize drugs, or coordinate with US law enforcement constitutes an unusual and extraordinary threat to America’s security,” the White House said in a fact sheet as the tariffs went into effect.

It leaves uncertain the fate of a trade pact Trump negotiated with Canada and Mexico in his first term and risks further straining the US economy and rekindling still simmering inflation.

‘Measured’ Measures

In response, China imposed tariffs as high as 15% on US goods and banned exports to some defense companies in retaliation to the Trump administration’s new levy. Soybeans, beef and fruits are among products facing a 10% tariff, according to an announcement from the Ministry of Finance.

“The measures are still relatively measured for now,” said Lynn Song, chief economist for Greater China at ING Bank. “This retaliation shows China remains patient and has refrained from ‘flipping the table’ so to speak despite the recent escalation.”

China also on Tuesday halted imports of logs from the US after pests were detected in US imports, according to a statement, as well as blocking soybeans from three US companies, according to a separate statement.

CHINA REACT: Sway US Opinion? Retaliation Targets US Farmers

Trump has signaled a desire to speak with Chinese leader Xi Jinping, but they have yet to talk a month after the US president raised the possibility of a call to negotiate a deal.

The new tariffs are a risky gambit for a president elected in part on dissatisfaction with his predecessor’s handling of the economy amid polls showing voters want Trump to do more on countering inflation.

Trump has dismissed warnings from economists that tariffs threaten to fuel price growth and will fail to bring in the revenue the president and allies have predicted as they look to assuage concerns about the cost of a tax cut package in Congress costing trillions.

Explainer: What Trump Aims to Achieve With His Tariff Plans

(Updates with new social media post from Trump in fifth paragraph, updates markets in eighth paragraph.)

--With assistance from Randy Thanthong-Knight, Brendan Murray, Shawn Donnan, Meghashyam Mali, Brian Platt, Katia Dmitrieva, Jorge Valero and Stephanie Lai.

To contact the reporters on this story:
Kate Sullivan in Washington at ksullivan256@bloomberg.net;
Josh Wingrove in Washington at jwingrove4@bloomberg.net

To contact the editors responsible for this story:
Justin Sink at jsink1@bloomberg.net

Malcolm Scott, Jordan Fabian

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