Canada, Mexico Hit Back at Trump Tariffs, China Vows Action

Canada and Mexico vowed to hit back at the U.S. after President Donald Trump followed through on threats to impose 25% tariffs on imports of their goods, instigating a trade war that’s set to reshape global supply chains.

Canadian Prime Minister Justin Trudeau said the country will impose 25% tariffs against C$155 billion ($106 billion) of U.S. goods, while Mexican President Claudia Sheinbaum also pledged retaliation. China vowed “corresponding countermeasures” to Trump’s 10% levy on Chinese products, without immediately announcing any new tariffs.

A tit-for-tat tariff fight among the world’s major economies — Trump has warned Europe that it’s in his crosshairs, too — adds fresh headwinds to the outlook for global growth, for profits of companies suddenly facing higher import taxes, and for financial markets adjusting to new trade flows. 

“It marks a new phase of the trade war, which targets multiple countries, including allies and China, to meet U.S. economic and geopolitical policy goals,” said Gary Ng, senior economist at Natixis SA.

Bloomberg Economics estimated that Trump’s move will raise the average U.S. tariff rate to 10.7% from near 3% currently and “deal a significant supply shock” to the domestic economy. U.S. gross domestic product would suffer a 1.2% hit and a widely watched gauge of core inflation would increase by 0.7%.

Emergency Declared

In an executive order posted February 1 on the White House website, Trump invoked the International Emergency Economic Powers Act, a 1970s-era law that grants the president broad tariff authority in national emergencies. He had threatened Mexico with this measure in 2019, but talks ultimately ended that dispute without Trump using it. 

The responses from three of America’s biggest trading partners came shortly after he signed orders for the U.S. tariffs on February 1. The measures take effect at 12:01 a.m. on January 4, leaving only a small window for last-minute negotiations.

The weekend announcement meant the reaction from financial markets would have to wait until February 3 in Asia. The risk of a trade war has helped fuel a rally in the dollar since Trump’s re-election, on the assumption tariffs would fuel inflation and thus support U.S. interest rates, as well as the greenback’s safe-haven status. 

Trump’s threats last week drove the Bl…