US President Donald Trump said on Monday that 25% tariffs on goods from Mexico and Canada will take effect on Tuesday, stoking fears of a trade war in North America and sending financial markets reeling.
Trump's comments sent US stocks down sharply in late afternoon trading. The Mexican peso and Canadian dollar both fell following his remarks.
"They're going to have to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs," Trump said at the White House.
He said there was "no room left" for a deal that would avert the tariffs by curbing fentanyl flows into the United States.
Trump also said reciprocal tariffs would take effect on April 2 on countries that impose duties on US products. He also reaffirmed that he will increase tariffs on all Chinese imports to 20% from the previous 10% levy to punish Beijing for continued shipments of fentanyl to the US.
Trump said China "has not taken adequate steps to alleviate the illicit drug crisis."
CEOs and economists say Trump's tariffs on Canada and Mexico, covering more than $900 billion worth of annual USimports, would deal a serious setback to the highly integrated North American economy.
The tariffs are scheduled to take effect at 12:01 am EST (0501 GMT) on Tuesday, the Trump administration confirmed. At that point Canada and Mexico face tariffs of 25%, with 10% for Canadian energy. Mexican officials did not immediately respond to requests for comment.
Canadian Foreign Minister Melanie Joly told reporters that Ottawa was ready to respond. "There's a level of unpredictability and chaos that comes out of the Oval Office, and we will be dealing with it," she said.
The Dow Jones Industrial Average fell 649.67 points, or 1.48%, the S&P 500 lost 104.78 points, or 1.76%, and the Nasdaq Composite dropped 497.09 points, or 2.64%.
Automaker shares fell sharply, with General Motors which has significant truck production in Mexico, down 4% and Ford falling 1.7%.
Gustavo Flores-Macias, a public policy professor at Cornell University, said consumers could see price hikes within days.
“The automobile sector, in particular, is likely to see considerable negative consequences, not only because of the disruption of the supply chains that crisscross the three countries in the manufacturing process, but also because of the expected increase in the price of vehicles, which can dampen demand," Flores-Macias said.
MEXICO'S RESPONSE PLANS
Mexico, after avoiding the first round of Trump's tariffs by striking a last-minute deal to send thousands of troops to its northern border, has stepped up anti-drug efforts and hinted at new measures on imported Chinese goods.
President Claudia Sheinbaum, in a press conference on Monday before Trump made his remarks, said her government was calm as it awaited Trump's decision, but that Mexico would respond if tariffs were imposed.
"We have a plan B, C, D," Sheinbaum said, without giving any details. She added that coordination with the USon trade and fentanyl trafficking has been "very good."
According to the Centers for Disease Control and Prevention, 72,776 people died from synthetic opioids in 2023 in the US, chiefly from fentanyl.
Representative Suzan DelBene, a Democrat from the state of Washington, said the decision to proceed with tariffs on Canada and Mexico would cost American families thousands of dollars at the grocery store, gas station and pharmacy counter.
“No president should be able to raise taxes without a vote in Congress," she said in a statement.
White House trade adviser Peter Navarro, however, told CNBC on Monday that the inflationary impact from any tariffs would be "second-order small, so I don't see the president wavering on any of this, because he knows in order to get to a world in which America is strong and prosperous, with real wages going up and (more) factory jobs. This is the path that he's chosen."
Trump on Saturday added another trade action to a cascade of tariff announcements over the past month, opening a national security investigation into imports of lumber and wood products that could result in steep tariffs. Canada, already facing 14.5% US tariffs on softwood lumber, would be hit particularly hard.
During the prior week, Trump ordered the revival of a tariff probe on countries that levy digital services taxes, proposed fees of up to $1.5 million every time a Chinese-built ship enters a USport, and launched a new tariff investigation into copper imports.
These come in addition to his plans to determine higher US "reciprocal tariffs" to match the tariff rates of other countries and offset their other trade barriers, a move that could hit the European Union hard over the value added taxes charged by EU countries.
But Trump's "tariffs on steroids" agenda may keep inflation higher and could tip the global economy into recession, warned Desmond Lachman, a senior fellow at the conservative American Enterprise Institute.
