On February 1, 2025, President Trump signed three executive orders imposing sweeping new tariffs on Canada, Mexico, and China. Using emergency powers under the International Emergency Economic Powers Act (IEEPA), Trump imposed a 25% tariff on imports from Canada and Mexico and a 10% tariff on goods from China. Even critical Canadian energy imports will face a 10% tariff. These measures, set to take effect at 12:01 a.m. EST on February 4, leave little time for negotiation, fuelling uncertainty in global markets.
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Retaliation from America's key trading partners was swift. Canada announced 25% tariffs on $20 billion worth of U.S. goods, with an expanded list targeting $86 billion in imports—including beverages, agricultural products, and household appliances—set to follow in three weeks. Prime Minister Justin Trudeau urged Canadians to "buy Canadian" in response. Mexico has pledged similar countermeasures, with President Claudia Sheinbaum instructing her government to impose tariffs ranging from 5% to 20% on agricultural and industrial goods. Although the full details remain undisclosed, sectors like steel, aluminium, and food production are expected to be hit. Meanwhile, China has vowed to challenge the tariffs at the World Trade Organisation and warned of countermeasures. Unlike Canada and Mexico, China has not announced immediate retaliation, possibly due to the ongoing Chinese New Year holiday, but if tensions escalate, its response could be severe.
The economic consequences could be substantial. Nearly half of U.S. imports originate from Canada, Mexico, and China, meaning that American businesses and consumers will inevitably bear the burden of rising costs. Industries such as automotive and manufacturing, where supply chains are deeply integrated across borders, will face major disruptions. Many products cross multiple checkpoints before becoming final goods, making tariff-induced price increases unavoidable. The impact on consumer prices will also be noticeable, particularly for food, beverages, and durable goods. Past experiences, such as the 2018 washing machine tariffs, showed that while price hikes can take months to materialise, they ultimately leave consumers with fewer choices and higher costs. U.S. exporters will also suffer, as retaliatory tariffs from Canada, Mexico, and China could significantly reduce demand for American agricultural and industrial goods. During Trump's first trade war with China, American farmers were hit hard, prompting the government to issue massive subsidies. If the situation escalates, a repeat of this scenario is likely.
The European Union has so far avoided direct tariffs, but may not remain unscathed. Trump has consistently criticised the EU's trade surplus with the U.S. and has initiated a trade investigation, with findings due in April. Given the speed of the administration's protectionist policies, the EU could soon find itself in the crosshairs. European car manufacturers with production facilities in Mexico will also feel the effects, as their supply chains become collateral damage in this escalating trade conflict.
By imposing tariffs on its three largest trading partners simultaneously, the Trump administration is challenging long-standing trade agreements and WTO rules. If Mexico, Canada, and China push forward with their retaliation, the world may face an unprecedented escalation in trade tensions. History has shown that trade wars rarely have winners—if this continues, all sides could suffer economic consequences that will be difficult to reverse.
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