Trump locks in Canada, Mexico tariffs to launch on Tuesday, stocks tumble

US President Donald Trump said 25% tariffs on goods from Mexico and Canada will take effect from Tuesday, pushing North America closer to a regional trade war and sending financial markets reeling.

Trump's comments on Monday triggered a sell-off in global stocks and pushed bond yields lower. The Mexican peso and Canadian dollar fell after his remarks.

“They're going to have a tariff. So what they have to do is build their car plants, frankly, and other things in the US, 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 US.

Trump also reaffirmed he will increase tariffs on all Chinese imports to 20% from the previous 10% levy to punish Beijing for failing to halt shipments of fentanyl to the US

The president said in an order China “has not taken adequate steps to alleviate the illicit drug crisis.”

CEOs and economists said Trump's tariffs on Canada and Mexico, covering more than $900bn (r16.7-trillion) worth of annual US imports, will deal a serious setback to the highly integrated North American economy.

The tariffs were scheduled to take effect at 12.01am on Tuesday, the Trump administration confirmed in Federal Register notices. At that point, the US customs and border protection agency will begin collecting 25% on Canadian and Mexican goods, with a 10% duty for Canadian energy.

The additional Chinese tariffs will also kick in at that deadline.

Canada said it would retaliate with 25% tariffs on C$155bn (R1.9-trillion) worth of US goods if Trump's tariffs went into effect, Prime Minister Justin Trudeau said Monday night, and urged the White House to reconsider.

Trudeau said Canadian tariffs will go into effect for C$30bn (R386bn) of products at the same time as US tariffs on Tuesday, while duties on the remaining C$125bn (R1.6-trillion)  of US goods will apply in 21 days.

“Our tariffs will remain in place until the US trade action is withdrawn, and should US tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” Trudeau said.

Mexico's economy ministry said there would be no public response until President Claudia Sheinbaum's regular morning press conference on Tuesday. She has vowed to respond, saying: “We have a plan B, C, D.”

Ontario premier Doug Ford told NBC the US tariffs and Canada's retaliation would be “an absolute disaster” for both countries.

“I don't want to respond but we will respond like they've never seen before,” Ford said, adding Michigan auto plants would likely shut down within a week and he would halt nickel shipments and cross-border transmission of electricity from Ontario to the US

“I'm going after absolutely everything,” Ford said.

China's commerce ministry on Tuesday vowed countermeasures against Washington's decision and urged the US to “immediately withdraw” its tariffs, which it described as “unreasonable and groundless, harmful to others”.

The state-backed Global Times newspaper earlier said Beijing's countermeasures would most likely target US agricultural and food products.

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 criss-cross 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, 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.

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.

However, White House trade adviser Peter Navarro said on Monday the inflationary impact from tariffs would be “second-order small” and he did not expect the president to waver on the measures.

“This is the path he's chosen,” Navarro told CNBC.

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, facing 14.5% US tariffs on softwood lumber, would be hit particularly hard.

During the week before, Trump ordered the revival of a tariff probe on countries that levy digital services taxes, proposed fees of up to $1.5m (R28m) every time a Chinese-built ship enters a US port and launched a new tariff investigation into copper imports.

These come on top of his plans for higher US “reciprocal tariffs” to match tariff rates of other countries and offset their other trade barriers, a move that could hit the EU hard over the value added taxes member states charge.

But Trump's “tariffs on steroids” may keep inflation higher and could tip the global economy into recession, warned Desmond Lachman, a senior fellow at the conservative American Enterprise Institute.

Reuters