Tariff fallout

Canada, Mexico set retaliatory tariffs; stock markets fall in morning trading

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As widely expected, on Friday the White House moved forward with plans to implement tariffs on the U.S.’s three largest trading partners, introducing matching 25% tariffs on Mexico and Canada, along with an additional 10% tariff on imports from China. Energy resources imported from Canada will also face a 10% tariff.

Negotiations with Mexico on Monday morning has brought a one-month reprieve for that country, with President Donald Trump agreeing to postpone the tariffs after reaching a tentative deal that would see Mexico deploy 10,000 troops to the border to help slow drugs moving across the border and the U.S. agreeing to ramp up efforts to stem the flow of guns into Mexico. Further negotiaitons would determine the ultimate fate of the tariffs, Trump said on Truth Social. Similarly, Canada reached an agreement with the administration and tariffs on that country were also delayed. A 10% tariff on China was enacted on Tuesday, with China responding with retaliatory tariffs. 

In explaining its rationale for the tariffs, the White House cited the “extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl,” adding that this constitutes a national emergency under the International Emergency Economic Powers Act (IEEPA).

This development is far from a surprise, as Trump had repeatedly stated during his campaign that implementing tariffs would be a key part of his administration’s economic and global trade strategy. Furthermore, shortly after being sworn in as president, Trump directed federal agencies to review trade relationships with China, Canada, and Mexico—the U.S.’s three largest trading partners—and made it clear that he would implement new or increased tariffs on them.

Global markets reacted negatively to the potential of a trade war. Japan’s Nikkei index dropped 2.5% and Europe’s STOXX 600 fell about 1%. The Dow Jones Industrial Average was off nearly 1.5% in mid-morning trading, with the S&P 500 down 1.5% and the Nasdaq off 2%. Automakers, which have significant exposure to trade between the U.S., Canada and Mexico, fell as well. General Motors dropped more than 6% and Ford fell 4% in morning trading.

Recent tariff history

In a memo issued on Jan. 21 to various federal government and cabinet officials, including the secretaries of State, Treasury, Defense, Commerce, and Homeland Security, as well as the director of the Office of Management and Budget, the U.S. trade representative, the assistant to the president for Economic Policy, and the senior counselor for trade and manufacturing, Trump emphasized that in 2017, his administration had pursued trade and economic policies that prioritized the American economy, American workers, and national security.

“This spurred an American revitalization marked by stable supply chains, massive economic growth, historically low inflation, a substantial increase in real wages, and real median household wealth, and a path toward eliminating destructive trade deficits,” the memo stated.

Not surprisingly, both Canada and Mexico have reacted quickly to Trump’s plans.

Canadian tariffs announced

The Canadian government called the tariffs, which are set to take effect after 12 a.m. ET on Tuesday, “unjustified and unreasonable.” It added that it would respond in kind by imposing a 25% tariff on $155 billion worth of U.S. products imported into Canada, including beverages, cosmetics, and paper products, among other goods.

Additionally, Canada plans to impose tariffs on an additional list of U.S. products worth $125 billion. This second list will be published soon for a 21-day public comment period before implementation and will include products such as passenger vehicles, trucks and buses, steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, and dairy products, among others.

“Canada and the U.S. are more than just trading partners,” said Dominic LeBlanc, Canadian Minister of Finance and Intergovernmental Affairs. “We are highly integrated economies, and this has greatly benefitted both of our countries for more than 150 years. We want to preserve this relationship, but in the face of the unjustified U.S. tariffs against Canadian goods, we are taking action to protect our economy, our workers, and our businesses. We will always stand for Canada.”

As for Mexico, an Associated Press report noted that the country has indicated it will impose retaliatory tariffs, but did not specify rates or affected products. Looking at China, Reuters reported that China’s commerce ministry said in a statement that these actions taken by the U.S. “seriously violates” international trade rules, urging the U.S. to “engage in frank dialogue and strengthen cooperation.”

In a recently issued research note, S&P Global Ratings observed that a 25% tariff by the U.S. on imports from Canada and Mexico could disproportionately impact certain sectors. According to global input-output tables, Mexico’s auto and electrical equipment sectors are most exposed to tariff shocks, while Canada’s commodity-related processing sectors have the largest exposure. For the U.S., S&P estimates a smaller output at risk if its direct neighbors impose in-kind tariffs, with agriculture, fishing, metals, and autos being the most vulnerable sectors.

Impact of previous tariffs

When the Trump administration first introduced its tariff plan in mid-2018, it consisted of a 25% tariff on $50 billion worth of goods imported from China, under the “America First” policy aimed at securing a more fair and beneficial position for U.S. companies. The policy also focused on protecting domestic property and intellectual property, halting non-economic transfers of critical technology to China, and improving access to the Chinese market. These tariffs sparked a trade war between the United States and China that continues today.

Leading up to the election, the Washington, D.C.-based National Retail Federation (NRF) issued a study indicating that U.S. consumers could see their collective spending power reduced by $46 billion to $78 billion annually if the incoming Trump administration implemented new tariffs.

The NRF study, titled “Estimated Impacts of Proposed Tariffs on Imports: Apparel, Toys, Furniture, Household Appliances, Footwear, and Travel Goods,” examined how future tariffs would affect the prices of these product categories.

The study concluded that, although some U.S. manufacturers might benefit from tariffs, the overall gains to U.S. producers and the U.S. Treasury would not outweigh the losses to consumers. For example, the price of a $40 toaster oven could rise to between $48 and $52, a $50 pair of sneakers might cost between $59 and $64, and a $2,000 mattress and box spring set could increase to between $2,128 and $2,190.

While Trump remains a strong supporter of tariffs, a recent Logistics Management reader survey of 100 freight transportation, logistics, and supply chain stakeholders found that tariffs are not at the top of their priorities. Sixty percent of respondents said they don’t believe tariffs will improve logistics and supply chain operations.

Reasons cited for this include increased costs, disrupted supply chains, inflation risks, the need for shippers to find alternate suppliers, higher production costs leading to reduced demand, and retaliatory tariffs causing supply chain disruptions.

“Tariffs will raise prices for manufacturers and consumers,” one shipper respondent said. “They will disrupt the flow of goods across the Canadian and Mexican borders, making it more difficult to maintain profitability. There are no winners in a ‘Tariff War.’”

However, 40% of respondents believed that tariffs would improve logistics and supply chain operations. Reasons cited included making American-made goods more competitive, bringing more manufacturing back to the U.S., and the potential for increased business volume based on future trade deals with desired trading partners.

“They will help get things into a more aligned, proper order,” one respondent stated. “Remember, [Trump’s] ultimate goal is free trade—or at a minimum, fair trade—and, when needed, leverage trade to improve things like our borders.”

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The announcement that the U.S. would place tariffs on trading partners Canada, Mexico and China has already triggered retaliatory tariffs and roiled stock markets.
(Photo: Getty Images)
The announcement that the U.S. would place tariffs on trading partners Canada, Mexico and China has already triggered retaliatory tariffs and roiled stock markets.
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About the Author

Jeff Berman, Group News Editor
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Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

View Jeff's author profile.

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