WASHINGTON DC: Donald Trump has announced plans to impose new tariffs on Mexico and Canada with effect from March 4, 2025. At the same time, the US President intends to double the existing 10% tariff on Chinese imports.

In a post on Truth Social, Trump said that drugs like fentanyl are being smuggled into the U.S. at dangerous levels. He believes that increasing import taxes will pressure other countries to take stricter action against drug trafficking.

Economic Impact and Market Reactions

The announcement has already created concerns about inflation and economic instability. Many fear higher tariffs will hurt businesses, especially the auto industry and other manufacturers. However, Trump has sometimes backed down on such decisions before. Earlier, he postponed the Canada and Mexico tariffs by 30 days when they were originally set to begin in February.

Following the news, the stock market reacted negatively. The S&P 500 index fell by 1.6% on Thursday, losing almost all the gains made since Trump's election victory in November.

Trump Dismisses Tariff Concerns

When asked whether American consumers and businesses would bear the cost of these tariffs, Trump dismissed the concerns, calling them a "myth." However, economic experts argue that his broad tariff policies could lead to higher prices for consumers and businesses.

Under Trump’s plan, imports from Mexico and Canada will face a 25% tariff, while Canadian energy products like oil and electricity will be taxed at a lower 10% rate. Trump says this move is aimed at tackling drug trafficking and immigration. In response, both Mexico and Canada highlighted their ongoing efforts to fight these issues. Canada recently appointed a fentanyl czar, and Mexico has deployed 10,000 National Guard troops to its U.S. border.

Mexico and Canada Respond

Mexican President Claudia Sheinbaum expressed hope for a discussion with Trump after high-level meetings in Washington this week. 

Sheinbaum acknowledged Trump’s unique way of communicating but remained hopeful about finding a solution. She also noted that Mexican and U.S. security officials are working together to improve intelligence sharing and make key arrests.

Canadian Prime Minister Justin Trudeau said Canada has already invested over 1 billion dollars in border security. Speaking in Montreal, he insisted there is no fentanyl emergency at the US-Canada border. He warned that if the U.S. moves forward with tariffs, Canada has a plan to respond. We will inflict tariffs on USD 30-bn worth of U.S products, with an additional 125 billion-dollar in tariffs 3 weeks later. But we prefer to avoid that situation, he said..

China and the Trade War

Trump also announced that China will face a higher tariff due to its role in producing chemicals used in fentanyl manufacturing. The existing 10 percent tariff will now be multiplied. In response, China’s Commerce Minister Wang Wentao sent a letter to the new U.S. Trade Representative, Jamieson Greer, urging the two countries to resolve trade issues through dialogue and negotiations.

Experts estimate that the new tariffs on Mexico and Canada could cost American consumers between USD120 billion and USD225 billion each year. The additional tariffs on China could add up to USD25 billion. This economic impact could be problematic for Trump, who previously promised voters that he would lower inflation. However, he has also long supported imposing high tariffs on foreign goods, and he plans to introduce even more trade measures on April 2 to match the taxes other countries place on American products.