US President Donald Trump confirmed that 25% tariffs on Mexico and Canada will be imposed starting March 4, following a one-month grace period that ended due to insufficient action on illegal drug and migrant flows.
The decision, announced yesterday afternoon from the Oval Office, comes despite data suggesting only 1% of fentanyl originates from Canada.
In addition to the tariffs on Mexico and Canada, Trump announced a 10% increase on China, bringing the total tariff level on Beijing to 20%, effective March 4.
The move has prompted counter measures from China, Mexico, and Ottawa, with Canadian Prime Minister Justin Trudeau stating Canada will impose 25% tariffs on $30 billion of US goods from March 4 and an additional $125 billion in three weeks.
Following the announcement, the Dow Jones Industrial Average and the S&P 500 each fell 2%, while the Nasdaq declined over 3%. The Peterson Institute for International Economics (PIIE) warned that the tariffs could add $1,200 to the typical US household’s annual bills, noting, “Future waves of US tariffs and retaliation will increase these substantial consumer costs alongside the other economic harms of tariffs: reduced economic growth, a shrinking export sector, and supply chain disruption.”
Trump suggested that affected countries build car plants and other facilities in the US to avoid tariffs, stating, “What they’ll have to do is build their car plants, frankly, and other things, in the United States, in which case they have no tariffs.”
The 25% tariff on Canada and Mexico could disrupt $600 billion in annual trade, with the US-Mexico-Canada Agreement (USMCA) facing strain. The 20% tariff on China, building on existing duties, may affect $500 billion in bilateral trade, with the Peterson Institute estimating a potential 0.8% GDP reduction for the US. China’s retaliatory focus on US agriculture, exporting $16 billion annually, could impact states like Iowa.
Based in Washington, D.C., Peterson Institute for International Economics (PIIE) is an economic think tank focused on global trade and policy analysis, founded in 1981 with a staff of over 50 economists.