All weekend long, there’s been a nonstop flood of talk and worse about what the tariffs the Trump Administration plans to impose early Tuesday on Canada, Mexico, and China actually mean.
Details are still coming out, some alarming, some not-so-alarming, and there’s been a lot of discussion.
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Financial markets began to react at 6 p.m. ET on Sunday when futures markets opened lower. Here’s a rundown of the tariffs and their meaning.
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What did President Trump do on tariffs?
He signed orders on Saturday that impose 25% tariffs on goods imported from Canada and Mexico and a new 10% tariff on goods imported from China. A break for the energy industry: The tariff is 10% on crude oil imported from Canada. Canada is the largest exporter of crude oil to the United States. Most is piped to refineries in the Midwest.
Who are the tariffs aimed at?
Right now, the tariffs are only aimed at Canada, Mexico and China. There is a little confusion on this point. On the Presidential Actions page of the White House website, the order is listed as “Imposing Duties to Address the Flow of Illicit Drugs across our National Border.” Clicking on the link brings one to “Imposing Duties to Address the Flow of Illicit Drugs across our Northern Border.”
When do tariffs take effect?
12:01 a.m. ET. Tuesday. Some shipments already on their way to the United States may not be subject to the tariffs if the shippers can prove when the shipping process began.
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What products might be affected?
Motor vehicles may see the most impact. U.S. manufacturers routinely move parts to and from Mexico and Canada. A third of General Motors’ (GM) sales come from vehicles made in Canada or Mexico. China produces most of the world’s personal computers and cell phones. Apple’s (AAPL) iPhone is assembled in China, Vietnam and India.
Mexico, meanwhile, is the biggest source of fresh vegetables and fruits in the United States during the winter.
Canada ships crude oil, wheat and other farm products to the United States. It also produces 75% of the world’s maple syrup.
Manufacturers in the Toronto area make the landing gears for Boeing (BA) jetliners. Boeing couldn’t pass the tariff costs on to consumers.
How would the economies of the three countries fare with new tariffs?
About 80% of Canada’s exports flow to the United States. Canada might be plunged into recession. Mexico might, too.
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Will the tariffs raise prices for consumers?
Probably. Capital Economics, a London-based consulting firm, estimated the tariffs would boost the inflation rate, as measured by the Personal Consumption Expenditures (PCE) Price Index, from 2.6% a year now to 3.2% a year.
The index is the Federal Reserve’s preferred inflation measure. The Fed has been struggling to get U.S. inflation to 2%, and Fed Chairman Jerome Powell said at last week’s meeting that there was no rush to cut rates further unless inflation eases.
It took President Trump until Sunday to concede price increases might come. “WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!),” Trump said in a social media post. “BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”
Why is the administration starting this trade war?
In theory, the tariffs are supposed to punish the three countries for doing too little to stop the flow of the highly addictive drug fentanyl into the U.S.
A bigger but unspoken reason is that the President does not like imports and believes imports do little for the domestic economy. Economic research has long argued that two-way trade benefits both sides.
Is that all?
Victoria Guida wrote in Politico magazine that the Trump Administration may be working on adding universal tariffs. Some of its supporters believe that the tariffs collected may be big enough to offset tax cuts the administration will propose this year.
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On this point, for historical backup, the administration is returning to the 1890 McKinley Tariff, enacted by a Republican-controlled Congress. That tariff imposed 50% duties on imports and raised prices for consumers. The result was a major backlash and a landslide win for Democrats in the 1892 elections. Grover Cleveland returned to the Presidency as the only president who served split terms—until Donald Trump’s 2024 win.
What has been the reaction from Canada, Mexico and China?
They are retaliating or expect to retaliate. On Sunday, the Canadian government published a list of hundreds of U.S.-made goods that would be subject to retaliatory tariffs. Ontario’s premier said the province’s liquor stores won’t sell American spirits. China’s actions may be delayed because of the celebrations of the Lunar New Year.
What’s been the reaction of markets?
Mostly negative as of late Sunday. Futures trading suggests the Dow Jones Industrial Average could open down more than 400 points. Ditto for the tech-heavy Nasdaq-100 Index. Crude-oil prices were rising sharply.
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How have economists reacted?
Many still believe Trump’s move is still a negotiating tactic to get better trade terms. Most dispute the assertions the tariffs will boost the U.S. economy.
In a CNN interview, former Treasury Secretary Larry Summers called the moves “a self-inflicted wound to the American economy.” He also predicted that the Trump administration’s tariffs would not lead to policy concessions from these nations or others.
“On the playground or in international relations, bullying is not an enduringly winning strategy. And that’s what this is,” Summers said.
How has business reacted?
If the Wall Street Journal is any indication, not well. As soon as the Administration said it would enact tariffs, the newspaper editorialized the move as “the dumbest trade war in history.”
Almost certainly, businesses would pass price increases on to consumers.
Best Buy (BBY) CEO Corie Barry has said higher costs from tariffs would shared by the company, its vendors and consumers. “These are prices people need, and higher prices are not helpful.”
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