Trump Pulls Trigger on Trade War

WASHINGTON, WEDNESDAY — The President of the United States, Donald Trump, on Tuesday (4/3/2025), has pulled the trigger on a trade war with his two neighbors, Canada and Mexico, as well as his strategic competitor, China. Many analysts predict that the negative effects of this trade war will be far more significant for the U.S. economy compared to its benefits.

The tariff increase policy came into effect after Trump assessed that the governments of the three countries had failed to stem the flow of fentanyl into the US.

Alongside this, to mitigate the effects of the trade war, including the potential rise in vehicle prices in the U.S. market, Trump and his cabinet attempted to find common ground with the three administrations.

Triggering a trade war, Trump imposed tariffs precisely at midnight on Tuesday. He applied a 25 percent tariff on all imported goods from Mexico and Canada. Oil from Canada was exempted from this scheme and was only subjected to an additional 10 percent import duty. Meanwhile, for products originating from China, Trump doubled the tariff to 20 percent.

The decision led the United States to abandon the free trade policy that had been the cornerstone of its global trade strategy for several decades following World War II. Trump argued that this trade system harmed the U.S. economy and, conversely, raising tariffs would bring prosperity to the country. He rejected the views of mainstream economists who claimed that the protectionism he implemented was costly and inefficient.

"Import taxes are a very powerful weapon that politicians do not use because they are either dishonest, stupid, or compensated in other ways," said Trump on Monday (3/3/2025). "And now we are using them."

Canadian Prime Minister Justin Trudeau described Trump's decision as a foolish act that would backfire. Canada responded to Trump's policy by imposing a 25 percent tariff on imported U.S. products worth 20.7 billion U.S. dollars. The affected products include orange juice, peanut butter, wine, alcoholic beverages, beer, coffee, and motorcycles.

Beyond that, Trudeau also stated that he would impose additional import tariffs on goods from the US amounting to more than 100 billion US dollars if Trump insists on implementing additional tariffs over the next 21 days. US goods that will be subject to tariff increases include motor vehicles, steel, aircraft, beef, and pork. Canada will also oppose US tariffs based on WTO rules and the US-Mexico-Canada free trade agreement.

"They have chosen to wage a trade war that, first and foremost, will hurt Americans," Trudeau said. At the same time, Trudeau said the Trump administration is considering working with Russian President Vladimir Putin's government. "That would be a very stupid thing to do."

In contrast to Canada, which immediately responded to Trump's policy, Mexican President Claudia Sheinbaum stated that they would only announce their policy choices on Sunday (9/3/2025).

In response to Canada's move, Trump also plans to raise tariffs against the country again. "Please make it clear to Governor Trudeau, of Canada, that when he imposes retaliatory tariffs on the U.S., our Reciprocal Tariffs will immediately increase by the same amount!" Trump wrote on his personal social media platform

Responding to Trudeau's move, U.S. Commerce Secretary Howard Lutnick said Trump might work out a partial resolution for Canada and Mexico. But that would not stop the tariffs. "There's not going to be a pause, there's no pause like that. But I think he's going to decide, you do more, and I'll meet you halfway, and we'll probably announce it tomorrow," he said in an interview with Fox Business Network.

Lutnick also said he had spoken to officials from both countries. A source told Reuters he spoke with Canadian Finance Minister Dominic LeBlanc.

Lutnick said Trump is considering granting waivers to companies that comply with regulations under the U.S.-Mexico-Canada free trade agreement, which is scheduled to be reviewed next year.

Some analysts and US businessmen are worried that Trump's policy choices will have a backlash effect on the US economy rather than a positive effect. Not only will it make the market vulnerable, the price of daily necessities is believed to increase. Ultimately, people's welfare will be eroded amidst incomes that have not improved.

Target CEO Brian Cornell said they have no choice but to raise prices on some seasonal products as long as there is no change in policy. Best Buy CEO Corrie Barry echoed this sentiment, saying that the company's primary sources of products come from China and Mexico.

Barry said the 20 percent tariff increase on imported goods from China would apply to several categories, including smartphones, laptops, video game consoles, smart watches and speakers, as well as Bluetooth devices.

Dartmouth College economist Douglas Irwin, who also wrote a 2017 history of U.S. tariff policy, has calculated that Trump’s tariff policy would push the average U.S. tariff rate from 2.4 percent to 10.5 percent, the highest level since the 1940s. “We are truly in a new era.”

In real terms, the policy of raising the tariff will increase the household burden by around 1,000 US dollars per year.

"We estimate that these tariffs could raise the cost of goods by nearly $1,000 per household each year," said Nationwide Mutual chief economist Kathy Bostjancic. That figure, Bostjancic said, could be even higher if the government fails to curb inflation.

Trump’s policies are also seen as insufficient to encourage the return of manufacturing to the U.S. Alan Russell, head of Tecma, which helps factories get off the ground in places like Ciudad Juarez, is skeptical that Trump’s new tariffs will bring manufacturing back to the United States.

“Nobody is going to move their factory until they have certainty,” Russell said. Last week, he said, Tecma helped a North Carolina manufacturer move to Mexico because it couldn’t find enough workers in the United States.

Price increases will also be felt in the automotive sector, especially since it is not easy for entrepreneurs to move their production facilities from one country to another.

"You can't just move auto production and supply chains overnight. That's the challenge and the dilemma: auto tariffs in North America could increase costs for consumers before jobs come back to this country," said John Bozzella, CEO of the Alliance for Automotive Innovation, which includes companies including Ford, Toyota, Volkswagen and Stellantis.

In an email to dealers across the US, Stellantis said it would work with the government to manage the additional cost burden felt by customers.

"Because the industry is so integrated across North America, these tariffs will put Stellantis' flagship Chrysler, Dodge, Jeep and Ram brands at a disadvantage relative to Korean, Japanese and European importers," the automaker said in an email seen by Reuters.

Last week, Lutnick met with U.S. auto executives who wanted the administration to hold off on major tariff increases. Last month, Ford CEO Jim Farley also warned that a tariff war with Mexico and Canada would leave a hole in the U.S. auto industry. "What we're seeing is a lot of costs, a lot of disruption," he said. (AP/Reuters)