President-elect Donald Trump promised Monday evening that on his first day in office he will slap a 25% tariff on all goods imported from Canada and Mexico — the top two U.S. trading partners — and will impose an additional 10% tariff on products from China. Trump said those tariffs would stay in place unless and until those countries control the flow of illegal drugs, particularly fentanyl, and of “all Illegal Aliens” into the country.
“Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem,” Trump wrote in a social media post. “We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
Trump has promised a tough new trade policy that he says will reinvigorate American manufacturing, improve terms with U.S. trading partners and compel companies to bring jobs back to the country. He may be issuing these threats as a negotiating tactic, but he has also repeatedly claimed that China and other countries will bear the burden of his planned tariffs, even as most economist warn that those costs will ultimately fall on American consumers and drive inflation higher.
Trump’s tariff plan also invites retaliation from those key trading partners and threatens to ignite a new trade war that would undercut the United States-Mexico-Canada Agreement, or USMCA, signed during Trump’s first term. Tariffs would violate the terms of that deal.
Mexico is the United States’ top trading partner, accounting for nearly 16% of total trade as of September, Reuters reports. Canada is second, at just under 14%.
“Stiff new tariffs on imports from the US’s three largest trading partners would significantly increase costs and disrupt business across all economies involved,” Erica York, senior economist at the business-friendly Tax Foundation think-tank, told the Financial Times. “Even the threat of tariffs can have a chilling effect.”
The Tax Foundation estimates that Trump’s tariffs, if imposed permanently, would generate $1.2 trillion in revenue over a decade — but would reduce GDP by 0.4 percent and cost nearly 345,000 jobs. Those estimates do not include any effects of foreign retaliation or the additional impact of a global trade war.
Already, China and Mexico have fired back at Trump’s comments.
“China-US economic and trade cooperation is mutually beneficial in nature. No one will win a trade war or a #tariff war,” Liu Pengyu, a spokesperson for the Chinese Embassy in the U.S., said in a post on X.
And President Claudia Sheinbaum of Mexico indicated on Tuesday that she wouldn’t shy away from a clash and warned that the economic consequences for both countries could be severe. “The response to one tariff will be another, until we put at risk companies that we share – yes, that we share," Sheinbaum said at a press conference, reading aloud from a letter she planned to send to Trump. She added that tariffs would hurt U.S. automakers and lead to inflation and job losses in both countries.
She also said that migrant encounters at the U.S.-Mexico border are down sharply since December and called for cooperation in addressing the issue and the factors that drive families to try to enter the United States. “If a percentage of what the United States allocates to war is dedicated to peacebuilding and development, the mobility of people will be fundamentally addressed,” she said. And she called the drug problem a public health issue for the United States to address.
Her remarks suggest a tougher stance than Trump encountered in his first term. “We negotiate as equals, there is no subordination here, because we are a great nation,” Sheinbaum said, adding that she believes an agreement will be reached.
Why it matters: “Trump’s market-moving threats were a stark reminder that he plans to wield tariff authority, or at least threaten to use it, as leverage against allies and adversaries alike,” Bloomberg’s Nancy Cook and Brian Platt write. “It’s another sign of his break from the international order where low tariffs are the goal and rules exist to discourage overreach of punitive trade actions.”
Voters who elected Trump to address the cost of living will likely wind up paying the price.
