Canada, Mexico Hit Back at Trump Tariffs, China Vows Action

(Bloomberg) --

Canada and Mexico vowed to hit back at US tariffs with tit-for-tat measures after President Donald Trump followed through on his threats of general levies of 25%, beginning a trade war that’s set to reshape global supply chains.

Canadian Prime Minister Justin Trudeau said the country will impose 25% tariffs against C$155 billion ($106 billion) of US goods, while Mexican President Claudia Sheinbaum pledged retaliatory tariffs. China vowed “corresponding countermeasures” to Trump’s 10% levy on Chinese exports without announcing any new tariffs. 

The responses from three of America’s biggest trading partners came shortly after Trump signed orders for the US tariffs on Saturday. The measures take effect at 12:01 a.m. on Tuesday, and it’s unclear if that offers a last-chance window for a deal. 

“It marks a new phase of the trade war, which targets multiple countries, including allies and China, to meet US economic and geopolitical policy goals,” Gary Ng, senior economist at Natixis SA. 

China’s Commerce Ministry pledged to file proceedings to the World Trade Organization in a Sunday statement, but stopped short of explicitly threatening counter-tariffs on US imports. President Xi Jinping’s government has in recent months been treading carefully with the US, avoiding any retaliation to trade curbs that could escalate tensions.

Trump’s tariffs deliver on a threat to punish the three countries for what he says is a failure to prevent the flow of undocumented migrants and illegal drugs, though he had also teased the possibility of a reprieve if Mexico and Canada took steps to address his concerns. 

The Republican’s orders also included retaliation clauses that would increase US tariffs if the countries respond in kind. The new measures will be on top of existing trade levies on those countries. 

Energy imports from Canada, including oil and electricity, will be spared from the full 25% levy and will face a 10% tariff. White House officials said that was intended to minimize upward pressure on gasoline and home-heating oil prices.

The move is explosive in scale and goes well beyond Trump’s first-term tariffs. They all but abandon the trade deal he negotiated with Canada and Mexico in his first term and will raise the cost of key goods, like food, housing and gasoline for Americans, while the overall fallout threatens to spill widely across the countries, which are the largest three sources of US imports, accounting for almost half of total volume. 

Trump campaigned on a platform of extensive tariffs and he followed through, though dialing back his planned measures on China while increasing it on his neighbors. Most mainstream economists and many business groups warn that trade levies will disrupt supply chains, raise prices for consumers already wary of inflation and reduce global trade flows.

Sweeping Measures

The orders Saturday curtailed so-called de minimis exemption for small parcels and packages sent to the US from the three countries, effectively applying tariffs more widely to small shipments and potentially impacting e-commerce and online retailing, though the scope of the measure wasn’t immediately clear. The US loses a tremendous amount of tariff revenue by using the exemption, a US official told reporters on a briefing call.

The measures Trump is taking will have particularly stark implications for the auto and energy sectors.

Auto interests warned that because of the tight integration of US and Canadian manufacturing, the tariffs could have steep impacts on the industry. 

“The imposition of tariffs will be detrimental to American jobs, investment and consumers,” Jennifer Safavian, the president of Autos Drive America, said in an emailed statement. “US automakers would be better served by policies that reduce barriers for manufacturers, ease regulations that hinder production and create greater export opportunities.”

Under an energy emergency Trump declared his first day in office, affected products given that lower 10% tariff also include refined gasoline and diesel, uranium, coal, biofuels and critical minerals.

Parts of the US, including the Pacific Northwest and Northeast US, are deeply reliant on electricity or gas flows from Canada. And oil industry advocates have warned against even a 10% increase in the cost of crude inputs into Midwestern refineries that have few near-term options to substitute with US supplies.

Mexico will also implement non-tariff measures, while calling for cooperation with the US on topics including security and addressing the fentanyl public health crisis, she said in a post on X.

The Mexican economy could enter a “severe recession” if Trump’s tariffs remain in place for more than a quarter, according to Gabriela Siller, director of economic analysis at Grupo Financiero Base. “If the tariffs last several months, the Mexican peso depreciation could reach record highs.” Also, US tariffs could freeze new foreign direct investment in Mexico, she added.

Democrats wasted no time in pouncing on messaging around how the latest trade moves could impact families’ budgets. “These tariffs will be devastating for American consumers,” Congressman Greg Stanton, an Arizona Democrat, and some 40 colleagues wrote in a Saturday letter.

“Trump’s tariffs on Mexico and Canada will make your life more expensive,” Stanton said more bluntly in a separate post on X.

Meanwhile, Republican support has been muted at best. The party’s free-trade wing has all but bowed to Trump’s penchant for tariffs. Outliers like Senator Rand Paul have signaled concern, as has Maine Senator Susan Collins, a key moderate. But, amid scant blowback from his party, Trump has barreled ahead. 

The move represents yet another instance where Trump is testing the bounds of his emergency authorities under federal law — already a hallmark of his second term in the White House. 

Trump’s tariff orders Saturday invoke the International Emergency Economic Powers Act and expand an earlier declaration rooted in the National Emergencies Act to address what he calls a “threat to the safety and security of Americans, including the public health crisis of deaths due to the use of fentanyl.”

Markets have been gripped by uncertainty as they awaited Trump’s decision on the tariffs and there are looming questions about how the levies will impact stocks.

In the 10 days since Trump’s initial tariff threat on his first full day in office, the S&P 500 Index was essentially flat while equity benchmarks in Europe, Canada and Mexico were all higher. The Nasdaq Golden Dragon Index — comprised of companies that do business in China but trade in the US — jumped more than 4%.

Automakers such as General Motors Co., Ford Motor Co. and Stellantis NV, which have global supply chains and massive exposure to Mexico and Canada, could see significant swings.

Officials justified the tariffs by citing the flow of fentanyl and other illegal drugs across the border, as well as illegal immigration. 

“Lashing out at key allies like Canada is not the way forward,” David McCall, president of the powerful United Steelworkers union, said in a statement. “Our union calls on President Trump to reverse course on Canadian tariffs.”

Retaliatory Steps

American beer, wine, food and appliances will be among the many items subject to Canadian tariffs, and the country is also considering measures related to critical minerals, Trudeau said. He encouraged Canadians to buy locally made products and skip US vacations.

The Trump administration has regularly warned Canada that any retaliatory tariffs would lead the US to escalate its own measures, according to an official familiar with the matter — raising the prospect of a spiraling trade war. The retaliation clause in the orders will only fuel that threat.

The orders enacting the tariffs create a process to remove them. Homeland Security Secretary Kristi Noem can inform Trump if the countries have taken adequate steps to alleviate concerns over migration and drugs, and the tariffs are removed if he agrees.  

It’s not clear how realistic a prospect that is; Canada, for instance, already took steps to tighten its border to appease Trump, and it didn’t deter him.

In a speech Saturday night, Trudeau invoked Canada’s long history of partnership with the US. “We have fought and died alongside you,” he said, citing World War II, the Korean War and the recent war in Afghanistan.

“Together, we’ve built the most successful economic, military, and security partnership the world has ever seen,” Trudeau said, and he urged Trump to partner with Canada on their shared challenges, including on the fentanyl crisis.

(Adds details from China’s Commerce Ministry.)

©2025 Bloomberg L.P.