Donald Trump said on Monday he would sign an executive order imposing a 25% tariff on all products coming in to the United States from Mexico and Canada.
“On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” Trump said in a post on Truth Social.
Trump said the tariffs would remain in place until the two countries clamp down on drugs, particularly fentanyl, and migrants crossing the border illegally.
In a follow-up post, Trump announced that the US “will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America”.
He said that the reason for the additional tariff was China’s failure to curb the number of drugs entering the US.
“I have had many talks with China about the massive amounts of drugs, in particular Fentanyl, being sent into the United States – But to no avail … Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America.”
In a statement, Liu Pengyu, a Chinese embassy spokesperson, said China had taken steps to combat drug trafficking after an agreement was reached last year between Joe Biden and Xi Jinping.
“The Chinese side has notified the US side of the progress made in US-related law enforcement operations against narcotics,” Liu said.
“All these prove that the idea of China knowingly allowing fentanyl precursors to flow into the United States runs completely counter to facts and reality,” Liu said.
Trump has previously pledged to end China’s most-favored-nation trading status and slap tariffs on Chinese imports in excess of 60% – much higher than those imposed during his first term.
The announcement sparked a dollar rally. It rose 1% against the Canadian dollar and 2% against the Mexican peso, while US stock futures and share markets in Asia fell.
The Chinese economy is in a much more vulnerable position given the country’s prolonged property downturn, debt risks and weak domestic demand.
The proposal may signal Trump’s plans for the US-Mexico-Canada Agreement (USMCA), which he renegotiated during his first term, and forebode a future trade war.
“While the USMCA agreement is technically only up for renegotiation in 2026, Trump is likely trying to kickstart the renewal process early with Canada and Mexico through today’s tariff announcements,” said Alex Loo, a foreign exchange and macro strategist at TD Securities.
Countries generally levy retaliatory tariffs of their own in response to tariffs such as those Trump is proposing, which can spark a trade war – as happened during Trump’s first presidency.
Neither the US nor China would win a trade war, the Chinese embassy in Washington said on Monday.
“About the issue of US tariffs on China, China believes that China-US economic and trade cooperation is mutually beneficial in nature,” Liu said in a statement.
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“No one will win a trade war or a tariff war,” Liu said.
Tahra Jirari, the director of economic analysis at an organization called the Chamber of Progress, which describes itself as “a new tech industry coalition devoted to a progressive society, economy, workforce, and consumer climate”, has reacted to Trump’s tariffs, pointing out that they will lead to higher prices for consumers.
“Trump vows 25% tariff on ALL Mexico/Canada imports if elected. This means higher prices for Americans. Tariffs = taxes that YOU pay at the store. Cars, food, electronics – all cost more. Even your grocery bill would jump. Companies can’t absorb 25% – it hits your wallet,” she wrote in a social media post.
While on the campaign trail in October, Trump described “tariff” as “the most beautiful word in the dictionary”, and made clear his intentions to reduce US companies’ use of foreign goods and parts by raising their cost. The policy, he said, would strengthen the US’s international trade position and boost US job growth.
Robert Reich, former US secretary of labor, warned that the tariff doesn’t work that way. “A tariff is basically a sales tax, raising the price of almost everything you buy. It’s also regressive – taking a higher percentage out of the paychecks of working people than out of the wealthy,” he posted on social media.
The Peterson Institute for International Economics, a nonpartisan Washington DC-based research organization, estimates that Trump’s proposed tariffs would cost the typical US household more than $2,600 a year.
Trump’s proposal comes just days after he picked hedge fund manager Scott Bessent to be his treasury secretary – a move many Wall Street executives believe signalled a willingness to moderate his approach to tariffs.
“It’s almost as if Trump wants to remind markets who is in control, after nominating Scott Bessent as treasury secretary – a man markets expected to cool Trump’s potency,” Matt Simpson, a senior market analyst for City Index told Reuters.
