A global trade war raises fears of higher inflation and slower growth.
Economists have been bracing for tariffs ever since President Trump won the election last year. But the measures he took on Tuesday against the United States’ closest trading partners far exceeded what they expected, raising the risks of a much more significant blow to the economy.
For a period of time, it was not entirely clear whether Mr. Trump would follow through on threats to impose new tariffs on the country’s three largest trading partners, Canada, Mexico and China. Many economists, policymakers and even administration officials had talked about the levies as simply negotiating tools that could be used to extract better terms from other countries.
But on Tuesday, a 25 percent tariff on nearly all imports from Canada and Mexico and an additional 10 percent tariff on imports from China went into effect. Even now that the tariffs are in place, a number of experts still question how long they will last given their potential to significantly damage an otherwise solid economy.
Economists this week published a raft of new estimates that sought to capture how bad the damage could be.
One of the biggest concerns is how tariffs will impact price pressures that have yet to be fully extinguished in the aftermath of the worst inflation shock in decades following the pandemic. Consumer price growth remains higher than officials at the Federal Reserve, who are responsible for keeping inflation low and stable, want it to be. For them to lower interest rates, they want to be certain that inflation is coming back down to its 2 percent target.
Krishna Guha, vice chairman at Evercore ISI, an investment advisory firm, warned that if these tariffs were maintained, it would increase the Federal Reserve’s preferred inflation gauge by roughly half a percentage point by the final quarter of the year. That gauge — the core personal consumption expenditures price index, which strips out volatile food and energy prices — stood at 2.6 percent as of January.
The impact could persist into next year, Mr. Guha warned, forecasting an additional 0.2 percentage point bump in core P.C.E. inflation in 2026.
Another concern is what these tariffs may mean for economic growth. The last time there was a global trade war stewarded by Mr. Trump, growth fears edged out those related to inflation. The reason was partly because price pressures at that time were, if anything, too low rather than too high. Moreover, companies responded to the uncertainty by pulling back, lowering business activity and raising the prospects of a much sharper slowdown. That prompted the Fed to lower interest rates in 2019 to safeguard the economy.
This time around, Kathy Bostjancic, chief economist at Nationwide, expects that if the tariffs are maintained and retaliation ensues, as has already started, the growth in gross domestic product will be a full percentage point lower than it would otherwise have been. That would suggest the U.S. economy would only grow 1 percent in 2025. Over the course of 2024, it grew 2.5 percent.
Ms. Bostjancic also estimates that what households end up spending on everyday items will increase on average by around $1,000 annually as a result of the tariffs.
“Part of the negative impact on economic activity stems from the drop in business, consumer and investor confidence, as the consensus view was that tariffs would be used as a threat and negotiating tool, instead of being implemented,” she said. “The deterioration in confidence could very well lead businesses to pare or at least delay investments and new hires, consumers to delay purchases, and for financial risk assets, such as equities, to decline or increase in volatility.”
Speaking at a House hearing on Tuesday, Mike Konczal, an economic official under the Biden administration, warned that the extreme uncertainty surrounding Mr. Trump’s tariff plans would also be detrimental.
“That kind of policy uncertainty is very poor for investments, very poor for growth,” he said. With “prices increasing at a period where consumers and everyday people are much more sensitive to prices than they may have been in more recent decades, I do worry it will feed into inflation expectations.”
LINK: https://www.nytimes.com/live/2025/03/04/us/tariffs-us-canada-mexico-china
US tariffs take effect and Mexico, Canada and China retaliate with their own tariffs on the US
WASHINGTON (AP) — President Donald Trump launched a trade war Tuesday against America’s three biggest trading partners, drawing immediate retaliation from Mexico, Canada and China and sending financial markets into a tailspin as the U.S. faced the threat of rekindled inflation and paralyzing uncertainty for business.
Just after midnight, Trump imposed 25% taxes, or tariffs, on Mexican and Canadian imports, though he limited the levy to 10% on Canadian energy. Trump also doubled the tariff he slapped last month on Chinese products to 20%.
Beijing retaliated with tariffs of up to 15% on a wide array of U.S. farm exports. It also expanded the number of U.S. companies subject to export controls and other restrictions by about two dozen.
Canadian Prime Minister Justin Trudeau said his country would plaster tariffs on more than $100 billion of American goods over the course of 21 days.
“Today the United States launched a trade war against Canada, their closest partner and ally, their closest friend. At the same, they are talking about working positively with Russia, appeasing Vladimir Putin, a lying, murderous dictator. Make that make sense,” Trudeau said.
Mexican President Claudia Sheinbaum said Mexico will respond to the new taxes with its own retaliatory tariffs. Sheinbaum said she will announce the products Mexico will target on Sunday in a public event in Mexico City’s central plaza, perhaps with the delay indicating Mexico still hopes to de-escalate the trade war set off by Trump.
As he promised voters, the U.S. president is abandoning the free trade policies the United States pursued for decades after World War II. Trump argues that open trade cost America millions of factory jobs and that tariffs are the path to national prosperity. He rejects mainstream economists who contend that such protectionism is costly and inefficient.
Import taxes are “a very powerful weapon that politicians haven’t used because they were either dishonest, stupid or paid off in some other form,” Trump said Monday at the White House. “And now we’re using them.”
Dartmouth College economist Douglas Irwin, author of a 2017 history of U.S. tariff policy, has calculated that Tuesday’s hikes will lift America’s average tariff from 2.4% to 10.5%, the highest level since the 1940s. “We’re in a new era for sure.”
U.S. markets dropped sharply Monday after Trump said there was “no room left” for negotiations that could lower the tariffs. Shares were mostly lower Tuesday after they took effect.
According to estimates by the Yale University Budget Lab, Trump’s tariffs amount to a tax hike of roughly $1.4 trillion to $1.5 trillion over 10 years, a massive increase that would disproportionately hit lower-income households.
The Canada and Mexico tariffs were supposed to begin in February, but Trump agreed to a 30-day suspension to negotiate further with the two largest U.S. trading partners. The stated reason for the tariffs is to address drug trafficking and illegal immigration, and both countries say they have made progress on those issues. But Trump has also said the tariffs will only come down if the U.S. trade imbalance closes, a process unlikely to be settled on a political timeline.
The tariffs may be short-lived if the U.S. economy suffers. But Trump could also impose more tariffs on the European Union, India, computer chips, autos and pharmaceutical drugs. The American president has injected a disorienting volatility into the world economy, leaving it off balance as people wonder what he will do next.
“It’s chaotic, especially compared to the way we saw tariffs rolled out in the first (Trump) administration,” said Michael House, co-chair of the international trade practice at the Perkins Coie law firm. “It’s unpredictable. We don’t know, in fact, what the president will do.’’
Democratic lawmakers were quick to criticize the tariffs, and even some Republican senators raised alarms.
Sen. Susan Collins, R-Maine, said she’s “very concerned” about the tariffs going into effect because of her state’s proximity to Canada.
“Maine and Canada’s economy are integrated,” Collins said, explaining that much of the state’s lobsters and blueberries are processed in Canada and then sent back to the U.S. The world economy is now caught in the fog of what appears to be a trade war.
Trudeau said Canada would impose 25% tariffs on $155 billion Canadian ($107 billion U.S.) worth of American goods, starting with tariffs on $30 billion Canadian ($21 billion U.S.) worth of goods immediately and on the remaining amount on American products in three weeks.
“Our tariffs will remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” Trudeau said.
The White House would like to see a drop in seizures of fentanyl inside the United States, not just on the northern and southern borders. Administration officials say that seizures of fentanyl last month everywhere from Louisiana to New Jersey had ties to foreign cartels.
Damon Pike, technical practice leader for customs and trade services at the tax and consulting firm BDO, suggested the responses of other countries could escalate trade tensions and possibly increase the economic pressure points.
“Canada has their list ready,” Pike said. “The EU has their list ready. It’s going to be tit for tat.’’
Tim Houston, the leader of Canada’s Atlantic coast province of Nova Scotia, said he would direct the Nova Scotia Liquor Corporation to remove all U.S. alcohol from store shelves. Houston also said his government will limit access to provincial procurement for American businesses and double the cost for commercial vehicles from the United States on a tolled highway.
The Trump administration has suggested inflation will not be as bad as economists claim, saying tariffs can motivate foreign companies to open factories in the United States. On Monday, Trump announced that Taiwan Semiconductor Manufacturing Company, the computer chipmaker, would be investing $100 billion in domestic production.
Still, it can take time to relocate factories spread across the world and to train workers.
Greg Ahearn, president and CEO of the Toy Association, said the 20% tariffs on Chinese goods will be “crippling” for the toy industry, as nearly 80% of toys sold in the U.S. are made in China.
“There’s a sophistication of manufacturing, of the tooling,” he said. “There’s a lot of handcrafting that is part of these toys that a lot of people don’t understand … the face painting, the face masks, the hair weaving, the hair braiding, the cut and sew for plush to get it to look just so.” All of that killed labor “has been passed through generations in the supply chain that exists with China.”
For a president who has promised quick results, Ahearn added a note of caution about how quickly U.S. factories could match their Chinese rivals.
“That can’t be replicated overnight,” he said.
LINK: https://apnews.com/article/trump-tariffs-canada-mexico-china-643086a6dc7ff716d876b3c83e3255b0
Trump tells US farmers to up production ahead of tariffs from April 2: ‘Have fun!’
Mike Bediganin New York, Monday 03 March 2025 23:14 GMT
Donald Trump has warned U.S. farmers to start upping their production from April 2, after announcing that he will soon be imposing tariffs on “external” agricultural products.
“To the Great Farmers of the United States: Get ready to start making a lot of agricultural product to be sold INSIDE of the United States. Tariffs will go on external product on April 2nd. Have fun!” the president wrote on Truth Social on Monday.
However, he did not specify what products would be subject to the tariffs or if there would be any exceptions.
In recent years, the U.S. has imported more agricultural products than it has exported. According to the USDA, in 2023, around $178 billion in products was exported – a $17 billion decrease from 2022. Meanwhile, the value of imports has grown, resulting in America’s agriculture trade deficit rising to a record $49 billion this year, according to last week’s forecast by the USDA.
At least half of the value in U.S. agricultural imports are in horticultural products – a broad category that includes fruits, vegetables, spirits, wine, essential oils, tree nuts and more. Sugar, coffee, cocoa, and other tropical products account for around 15 percent of imports.
Since taking office, the president has been determined to crack down on the U.S.’s reliance on imports through tariffs, specifically targeting Canada and Mexico – two of America’s largest trade partners. The president said on Monday that the sweeping 25 percent tariffs on Mexican and Canadian imports would begin on Tuesday. Though they were initially postponed in February, Trump said there was “no room left” for negotiations with the countries.
Mexico shipped $45.4 billion of agricultural products to the US in 2023, accounting for about 23 percent of imports and making the country the US’s largest supplier, according to the USDA.
Canada and the European Union sent a combined $73 billion in crops to the US, Bloomberg reported.
Trump’s announcement of tariffs on “external” agricultural products comes shortly after the administration unveiled plans to invest $1 billion in a new strategy to mitigate the impacts of bird flu, which has raised egg prices and slowed milk production across the U.S.
Agriculture Secretary Brooke Rollins previously defended Trump’s plans to use tariffs to protect U.S. farm interests. “His idea of using tariffs in his tool kit has proven very successful the first time. I have no doubt it will be successful again,” Rollins told reporters last week.
China and Canada immediately retaliate against Trump’s tariffs. Mexico is next
By Elisabeth Buchwald, CNN, Updated 1:17 PM EST, Tue March 4, 2025
President Donald Trump’s blanket 25% tariffs on Mexico and Canada took effect on Tuesday, an extraordinary action aimed at bringing America’s top trading partners to heel. But it threatens to weaken the North American economy, including that of the United States, at a time of significant stress for inflation-weary consumers.
Trump also doubled the tariff on all Chinese imports to 20% from 10%. Those duties sit atop existing tariffs on hundreds of billions in Chinese goods. China and Canada immediately retaliated with tariffs on American goods, threatening to ignite a damaging trade war. Mexico said it would announce retaliator measures Sunday.
The Trump administration said the tariffs were necessary to stem the flow of fentanyl into the United States.
“While President Trump gave both Canada and Mexico ample opportunity to curb the dangerous cartel activity and influx of lethal drugs flowing into our country, they have failed to adequately address the situation,” according to a statement released by the White House shortly before the tariffs took effect.
But the tariffs come at a time when inflation remains stubbornly high. Americans, and the US economy as a whole, are on shakier ground, as evidenced by recent data.
Trump’s tariffs threaten to raise the prices Americans pay for a wide array of goods that are imported from the three nations, which collectively shipped $1.4 trillion worth of goods to the US last year, according to Commerce Department data. That accounts for more than 40% of the value of all goods the US imported last year.
The only goods that won’t face a 25% tariff from Canada are energy-related items such as crude oil, one of the top goods the US imports from there. Instead, they’ll be subject to a 10% tax.
Fresh produce, cars and car parts and electronics, including phones and computers, are among the top goods the US imports from Mexico, Canada and China that will now face tariffs between 20% and 25%.
The stocks of global carmakers that have plants in Mexico fell sharply on Tuesday morning. Germany’s Volkswagen dropped almost 4% by 5.46 a.m. ET, while Stellantis (STLA) — the maker of Chrysler and Jeep — fell nearly 7%.
China and Canada hit back. Mexico is next
Beijing retaliated on Tuesday by announcing 15% tariffs on chicken, wheat, corn, and cotton imports from the US, according to a statement from the State Council Tariff Commission. Additionally, a 10% tariff on “sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables, and dairy products,” was also imposed, it said.
Separately, China’s Ministry of Commerce said it added 15 American companies, including drone maker Skydio, to its export control list, which would bar Chinese companies from exporting dual-use equipment to them.
China’s retaliatory tariffs followed a “restrained, targeted approach aimed at causing pain to those industries that matter the most to the supporters of the Trump administration,” said Alfredo Montufar-Helu, head of the China Center for the Conference Board. He noted China’s tariffs give it room for negotiations to potentially avoid even more damaging tariffs down the road.
What is a tariff and how does it work?
Speaking at a regular briefing on Tuesday, Lin Jian, a spokesperson for China’s Foreign Ministry, said: “China will fight till the end” if the US “insists on waging a tariff war, trade war or any other kind of war.”
“I want to reiterate that the Chinese people have never feared evil or ghosts, nor have we ever bowed to hegemony or bullying. Pressure, coercion and threats are not the right ways to engage with China. Trying to exert maximum pressure on China is a miscalculation and a mistake,” he added.
China announced more measures targeting America on Tuesday. These include stopping lumber imports from the United States, suspending the permits of three US companies to export soybeans to the country and an anti-dumping investigation into some imports of American fiber optic products.
Part of Trump’s stated motivation for imposing tariffs on China, Canada and Mexico is to pressure those countries into exerting stricter controls on the flow of fentanyl into the US.
US law enforcement believes a number of China-based entities supply precursor chemicals, which can be used to make finished fentanyl in labs operated by drug cartels in the US and Mexico.
On Tuesday, China’s State Council Information Office published a document outlining the steps the government had taken in recent years to control the production and distribution of fentanyl-related substances, according to China’s state news agency Xinhua. Referring to China’s approach to international drug control, Xinhua quoted the document as saying that the country “advocates mutual assistance… and opposes finger-pointing and buck-passing.”
Canadian Prime Minister Justin Trudeau warned Tuesday in a press conference that Canada “will not back down from a fight.” He said he would implement a 25% tariff on C$30 billion ($20.7 billion) of US goods immediately, followed by an additional C$125 billion ($86.2 billion) in 21 days’ time.
“This is a very dumb thing to do,” he said, in remarks he said were directed at Trump. “We two friends fighting is exactly what our opponents around the world want to see.”
Dairy products, meats, grains, wine, beer, apparel, footwear, motorcycles, cosmetics and certain pulp and paper products are just some of the US goods that will be subject to immediate tariffs, according to Canada’s Department of Finance.
“We will also be challenging these illegal actions by filing dispute resolution claims at the World Trade Organization and through the USMCA,” Trudeau noted. “In the meantime, our tariffs will remain in place until the US tariffs are withdrawn and not a moment sooner.”
If tariffs don’t cease, Trudeau said his government is in active conversations with provinces and territories to pursue several non-tariff measures “measures that will demonstrate that there are no winners in a trade war.”
The premier of Ontario, Canada’s largest province, has also repeated his earlier threat to cut off energy supply to the US in response to Trump’s tariffs.
“If they want to try to annihilate Ontario, I will do everything, including cut off their energy, with a smile on my face. And I’m encouraging every other province to do the same,” Doug Ford told reporters on Monday, adding that eastern US relies on “our energy — they need to fell the pain.”
Despite Trump’s prior claims that exporters pay for tariffs, it’s actually the parties receiving goods from abroad that pay the tariff upfront. Those parties, often businesses, typically then pass on the additional tariff costs to consumers by raising prices. But in some cases, they may opt to, or be forced to, absorb the higher costs.
Mexico’s President Claudia Sheinbaum said on Tuesday morning that she would announce retaliatory tariffs on American imports into Mexico, as well as non-tariff measures, on Sunday. She said she will probably have a call with Trump on Thursday.
“The unilateral decision made by the United States affects national and foreign companies operating in our country, as well as our people,” she said at a press conference in Mexico City.
“No one benefits from this decision,” she added.
Impact on spending
Although America’s economy remains resilient, tariffs come during a time of increasing cracks in the foundation. A Bureau of Economic Analysis report Friday showed consumer spending unexpectedly fell in January, and a recent inflation report showed consumer prices rebounded in January and inflation continues to grow at a stubbornly high pace.
Meanwhile, consumer confidence fell the most to start a year since 2009, and a separate consumer sentiment report last month registered the biggest decline since records began in 1978. That’s a problem because consumer spending makes up more than two-thirds of America’s economic activity.
Friday’s jobs report is expected to show growth continues to stagnate. First-time applications for jobless benefits ticked up more than expected last week, and the Trump administration is laying off thousands of federal workers, potentially disrupting local economies. Federal spending has also been curtailed, turning off access to some people’s livelihoods and services.
Trump’s immigration crackdown also threatens homebuilding, agriculture and other key industries.
“Imposing tariffs on Canada and Mexico threatens to chill a collaborative effort to strengthen our shared border and risks starting a trade war with America’s closest trading partners,” National Foreign Trade Council (NFTC) vice president for global trade policy Tiffany Smith said in a statement Monday.
Smith said NFTC, a trade organization, supports the Trump administration’s goal “to address illicit activity at our borders.” However, they are “deeply concerned” by the new tariffs, which they claim will “raise costs for American businesses and consumers and undermine US economic growth.”
More to come?
Trump and his administration have suggested that the latest round of tariffs, though significant, are only the beginning.
Trump on Tuesday responded to Trudeau, threatening to “immediately” increase reciprocal tariffs on the neighboring country.
“Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount,” Trump wrote in a Truth Social post.
LINK: https://www.cnn.com/2025/03/04/economy/trade-mexico-canada-china-tariffs-trump-hnk-intl/index.html
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