Trade wars intensify as US tariffs on Canada, Mexico and China take force

WASHINGTON: Mounting trade wars between the United States and its largest economic partners deepened on Tuesday (Mar 4) as US tariffs on Canada, Mexico and China kicked in, sparking swift retaliation from Beijing and Ottawa.

Stinging US tariffs on Canadian and Mexican goods came into effect as a deadline to avert President Donald Trump's levies passed without the nations striking a deal - a move set to snarl supply chains.

Trade war fears sent markets falling in Asia and Europe on Tuesday in response to what analysts said were its steepest tariffs on imports since the 1940s.

Trump had announced - and then paused - the blanket 25 per cent tariffs on imports from major trading partners Canada and Mexico in February, accusing them of failing to stop illegal immigration and drug trafficking.

In pushing ahead with the duties, Trump cited a lack of progress in tackling the flow of drugs like fentanyl into the United States.

The duties stand to impact over US$918 billion worth of US imports from both countries.

The sweeping duties on Canada and Mexico are set to hamper supply chains for key sectors like automobiles and construction materials, risking cost increases to households.

Mexico supplied 63 per cent of US vegetable imports and nearly half of US fruit and nut imports in 2023, according to the US Department of Agriculture.

More than 80 per cent of US avocados come from Mexico - meaning higher import costs could push up prices for American shoppers.

Truck drivers at the Otay Mesa border crossing in Mexico told AFP they were already feeling the impact of the tariffs as they lined up to cross into the United States on Tuesday morning.

Work was drying up because many companies in the Mexican border city of Tijuana export Chinese goods, said driver Angel Cervantes.

"And since the tariffs are also against China, work is going down for the (transport) companies," he added.

And the United States imports construction materials from Canada, too, meaning tariffs could drive up housing costs.

More than 70 per cent of imports of two key materials homebuilders need - softwood lumber and gypsum - come from Canada and Mexico, said National Association of Home Builders chairman Carl Harris.

"BITTER END"

Trump also inked an order Monday to increase a previously imposed 10 per cent tariff on China to 20 per cent - piling atop existing levies on various Chinese goods.

Beijing condemned the "unilateral imposition of tariffs by the US" and swiftly retaliated, saying it would impose 10 and 15 per cent levies on a range of agricultural imports from the United States.

China's tariffs will come into effect next week and will impact tens of billions of dollars in imports, from US soybeans to chickens.

Beijing's foreign ministry vowed to fight a US trade war to the "bitter end".

"The Chinese people will not be intimidated," spokesman Lin Jian said.

And after Trump earlier announced tariffs on EU products would be 25 per cent, France's Economy Minister Eric Lombard called for the European Union to reach a "balanced deal" with Washington.

EU trade spokesman Olof Gill warned the tariffs on Canada and Mexico threatened transatlantic "economic stability" and risked "disrupting global trade," urging Washington to reverse course.

Economists caution that tariffs could raise consumer prices while weighing on growth and employment.

The Tax Foundation estimates that before accounting for foreign retaliation, tariffs on Canada, Mexico and China this time would each cut US economic output by 0.1 per cent.

This could complicate Trump's efforts to fulfill his campaign promises of lowering prices for Americans.

Former US officials see Trump's tariffs over drugs like fentanyl as a means to tackle socio-economic problems - while providing legal justifications to move quickly.

Washington is also seeking leverage and to rebalance trade ties, analysts say.

But using emergency economic powers to impose tariffs on Canada, Mexico and China is a novel move, and could trigger lawsuits.

US TARIFFS WON'T "GO UNANSWERED"

Canadian Prime Minister Justin Trudeau on Monday pledged to impose retaliatory 25 per cent tariffs on Washington, saying in a statement: "Canada will not let this unjustified decision go unanswered."

Mexican President Claudia Sheinbaum said her country has contingency plans.

If Trump continues with his tariff plans, KPMG chief economist Diane Swonk warned ahead of them going into effect: "We could easily reach the highest effective tariff rate since 1936 by the beginning of 2026."

Both consumers and manufacturers stand to bear the costs of additional tariffs, which could diminish demand and trigger layoffs as businesses try to keep costs under control, she told AFP.

Robert Dietz, chief economist at the National Association of Home Builders, told AFP the group expects a possible "combined duty tariff rate of above 50 per cent on Canadian lumber" as proposed duties add up.

Even as the United States also plans to expand forestry, Dietz said, prices will likely rise in the short-run.