President-elect Donald Trump announced on Monday his plan to significantly increase tariffs on imports from Mexico, Canada, and China starting on the first day of his presidency, a policy that could dramatically raise costs for both American businesses and consumers.
Trump stated that these tariff hikes are responses to illegal immigration and issues related to “crime and drugs” crossing the borders.
“On January 20th, as one of my first Executive Orders, I will sign all necessary documents to impose a 25% tariff on ALL products entering the United States from Mexico and Canada, and address their ridiculous open borders,” Trump posted on his Truth Social platform.
“This tariff will remain in effect until such time as drugs, particularly fentanyl, and all illegal aliens cease this invasion of our country!”
He also noted that this issue could be readily resolved by America’s neighboring countries.
Trump further declared that China would experience an increase in tariffs on its goods—an additional 10% above existing tariffs—until it curbs the illegal drug influx into the United States.
“I have had many talks with China about the massive amounts of drugs, particularly fentanyl, being sent into the United States—but to no avail,” Trump posted on Truth Social.
In his social media update, the president-elect accused Chinese officials of failing to uphold promises to crack down on drug traffickers.
Responding to the tariff announcement, Liu Pengyu, spokesperson for the Chinese Embassy, countered these claims, stating that China has actively engaged with the U.S. in narcotics control and dismissed the idea that China would permit the flow of drug precursors into the United States as baseless.
“Regarding the issue of US tariffs on China, China believes that China-US economic and trade cooperation is mutually beneficial. No one will win a trade war or a tariff war,” Liu said in a statement.
A Significant Policy Change
This policy shift could significantly disrupt U.S. supply chains and affect industries dependent on imports from these key trade partners.
Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions, estimated that these measures could add about $272 billion annually to tax burdens, increase goods prices, elevate interest rates, and weaken the already fragile consumer sector.
Following this news, the Canadian dollar saw a 1.2% decrease against the U.S. dollar, and the Mexican peso dropped by 2%. Meanwhile, the Chinese yuan rose slightly in offshore trading, exceeding a 7.6% mark.
Although some investors speculate that these tariffs might strengthen the U.S. dollar, the announcement negatively impacted U.S. financial markets. The added tariffs would significantly elevate costs for Americans, affecting prices for everyday items that were previously untaxed.
Such a drastic policy change threatens to hinder economic growth, particularly as inflation concerns might cause consumers to reduce spending due to heightened costs.
Before the announcement, U.S. stock futures were performing well but fell after the news—Dow futures were down by 0.3%, Nasdaq futures by 0.4%, and the broader S&P 500 was also down by 0.4%. Prices of U.S. Treasury bonds also dropped.
Canada is a major supplier of oil to the United States, with imports peaking at 4.3 million barrels per day in July, according to the U.S. Energy Information Administration. The U.S. also imports cars, machinery, plastics, and wood from Canada, according to the UN’s Comtrade database.
Mexico has become the primary supplier of cars and car parts to the U.S., surpassing China as the top exporter in 2023, with significant imports also in electronics, machinery, oil, and optical equipment. Mexico also supplies a considerable amount of furniture and alcohol to the U.S.
China is a significant source of electronics, machinery, toys, sports equipment, furniture, and plastics for the U.S. market.
During his first term, Trump implemented tariffs affecting approximately $380 billion in Chinese goods, impacting a wide range of products. The tariffs also targeted foreign steel, aluminum, washing machines, and solar panels.
Despite the USMCA trade agreement exempting many imports from Canada and Mexico from tariffs, it remains unclear how Trump plans to implement the proposed tariffs without breaching this agreement.
Trump often highlights the passage of the USMCA, which replaced NAFTA, as a major achievement of his first term.
