Why Trump's tariffs on China, Mexico, Canada are bad news for the US

As United States President Donald Trump moves forward with sweeping tariffs on imports from Canada, Mexico, and China, the economic impact on American businesses and consumers is set to be significant.

With a 25 per cent tariff imposed on most goods from Mexico and Canada and an increase in duties on Chinese imports, the effects are expected to ripple through various sectors, from retail and automotive to agriculture and manufacturing.

Economists warn that the trade policies could result in rising prices, supply chain disruptions, and economic volatility.

Trump had initially granted a one-month pause on the tariffs in exchange for commitments from Canada and Mexico to curb the flow of illicit drugs and migrants into the United States. However, the president announced that the tariffs would take effect immediately, rejecting speculation that he might delay their implementation further.

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Additionally, an amended executive order increased tariffs on China by an additional 10 percentage points for the second time in two months.

Trump has long argued that these tariffs are necessary to protect American industries, generate government revenue, and pressure foreign countries to change their trade practices.

Affect on everyday goods

One of the most immediate consequences of these tariffs will be the increase in consumer prices. China, Mexico, and Canada together accounted for 43 per cent of the $3.1 trillion in goods imported by the US in 2023.

With new tariffs in place, products that Americans rely on daily — including electronics, clothing, household goods, and groceries—are expected to become more expensive.

China alone exported approximately $210 billion worth of consumer goods to the US last year, including essential products such as smartphones, apparel, and toys.

Industry groups have sounded the alarm over rising costs, warning that companies may pass these expenses on to consumers. The Consumer Technology Association estimated that smartphone prices could rise by about $213, while manufacturers of footwear, hardware, and consumer goods have also signaled potential price increases.

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The grocery sector will also see significant impacts. The US imported nearly $10 billion worth of vegetables and over $11 billion worth of fruit and frozen juices from Mexico in 2023.

Given that Mexico supplies the majority of America’s avocados, as well as a significant share of imported beer and tequila, grocery costs are expected to climb. With food inflation already a major concern for Americans, the new tariffs could add further strain on household budgets.

Disruption in the auto industry and manufacturing

The automotive sector, which depends heavily on cross-border trade, is another area poised for disruption. Over half of all automotive vehicles, parts, and engines used in the US originate from Canada and Mexico.

Mexico alone exported $173 billion worth of automotive products to the US in 2023. Tariffs will make it more expensive to import essential parts, which could lead automakers to adjust production strategies, potentially stripping down features on vehicles or raising prices for consumers.

Manufacturing as a whole will also face cost increases, as raw materials such as steel, aluminum, and crude oil become more expensive. Canada was the largest exporter of industrial supplies to the US in 2023, with crude oil imports alone valued at $93 billion.

The new tariffs on these imports could make US-made products more expensive to produce, potentially reducing the competitiveness of American industries.

Impact on the stock market

The financial markets have already reacted negatively to Trump’s tariff announcement . Following the news, the S&P 500 dropped 1.8 per cent, while the Nasdaq Composite fell 2.6 per cent.

At the same time, economic indicators have shown early signs of strain. Surveys indicate a decline in consumer confidence, an increase in inflation expectations, and growing concerns among US businesses about supply chain disruptions.

The latest ISM Manufacturing Index report, which tracks US manufacturing activity, revealed that companies are already feeling the effects of the tariffs.

Businesses have reported that customers are pausing new orders, suppliers are increasing prices, and investment plans are being put on hold. Similarly, US earnings calls have begun reflecting concerns about the impact of tariffs, with executives voicing worries about rising costs and profit margins.

Consumer sentiment surveys have also highlighted growing anxieties. A Conference Board survey found that consumer confidence saw its largest monthly decline since August 2021, with respondents specifically citing concerns over tariffs.

Meanwhile, the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures price index, showed a slight cooling in January. However, the report also highlighted a significant pullback in consumer spending, indicating that Americans may already be adjusting their purchasing habits in anticipation of higher costs.

The risk of a spiralling trade war

One of the most pressing concerns is the possibility of retaliation from US trading partners. China has already responded to Trump’s tariffs by imposing duties on American coal, automobiles, and other goods.

Both Canada and Mexico have warned that they may introduce retaliatory measures as well.

Perhaps most alarming is a provision in Trump’s executive orders that states any retaliation by foreign governments will be met with additional tariffs from the US. This raises the risk of an escalating trade war, where countries impose tit-for-tat tariffs, further disrupting global trade.

Trump himself acknowledged the potential risks , writing on social media: “WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!), BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”

A greater impact that Trump’s first term

Unlike Trump’s first-term tariffs, which were selectively targeted at industrial products and spared many consumer goods, this round of tariffs is much broader in scope. Experts predict that the impact could be far greater than in 2018-2019, particularly given the current economic climate.

One of the key differences this time is inflation. During Trump’s first term, inflation was low, and the Federal Reserve was concerned about prices rising too slowly. In contrast, the current economic environment is characterised by lingering inflationary pressures.

Prices surged following the COVID-19 pandemic recovery, and while inflation has cooled from its peak, it remains above the Federal Reserve’s 2 per cent target. If tariffs drive prices higher, the Fed may be forced to maintain elevated interest rates for longer than expected, which could slow economic growth and make borrowing more expensive for businesses and consumers alike.

Trump and his advisors have suggested using tariff revenue to replace income taxes, which could mean that these tariffs remain in place even if Canada and Mexico comply with US demands on other policy issues, such as immigration controls.

Trump has long championed tariffs as a means of reviving American manufacturing, generating revenue, and pressuring foreign nations to alter their trade policies.

With inputs from agencies