Donald Trump kicked off the trade war he has been threatening for months on Saturday with steep tariffs against Canada and Mexico, provoking swift retaliation from the Canadian and Mexican governments.
The opening salvo: The U.S. announced it would apply tariffs of 25% to all Canadian and Mexican imports beginning on Tuesday (along with a 10% levy on imports from China). Canadian energy products will face a lower fee of 10%.
The response: Canada announced retaliatory tariffs of 25% on $30 billion worth of U.S. imports beginning tomorrow, ramping up to cover $155 billion worth of goods by February 25.
- Prime Minister Trudeau said non-tariff options were also on the table, including export restrictions on critical minerals and “Buy Canadian” rules for government procurement.
- Across the country, provincial governments also took action, with Ontario, Quebec, and Nova Scotia pulling U.S. liquor from the shelves of government-run stores and B.C. ordering its liquor distributor to pull booze from Republican-led states.
Why it matters: The effects of the trade war will be felt almost immediately, starting with price hikes on many everyday products.
- Produce and other perishable goods imported from the U.S. will get more expensive first. Prices for other imports like clothes and appliances that may already be stocked will likely take longer to rise.
- The loonie will also weaken, immediately increasing the cost of any purchases made in U.S. dollars.
- If the tariffs remain in place for an extended period of time, expect to see large lay-offs in sectors of the economy heavily exposed to U.S. exports, like energy, automotive, and machinery.
What’s next: Trump threatened to increase tariffs if Canada or Mexico retaliated, so this conflict could intensify further in the coming days.—TS