Trump triggers trade war, price hikes with tariffs on Canada, China and Mexico

By David Lawder, David Ljunggren and Kylie Madry

WASHINGTON (Reuters) - U.S. President Donald Trump's new 25% tariffs on imports from Mexico and Canada took effect on Tuesday, along with fresh duties on Chinese goods, sparking trade wars that could slam economic growth and raise prices for Americans still smarting from years of high inflation.

The moves, which could upend nearly $2.2 trillion in annual trade, came after Trump declared that the top three U.S. trading partners had failed to do enough to stem the flow of fentanyl and its precursor chemicals into the U.S.

In an address to Congress, Trump said further tariffs would follow on April 2, including "reciprocal tariffs" and non-tariff actions aimed balancing out years of trade imbalances.

"Other countries have used tariffs against us for decades, and now it's our turn," Trump said, citing high duties imposed on U.S. goods by India, South Korea, the European Union, China and others.

China's foreign affairs ministry shot back defiantly: "If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end."

Commerce Secretary Howard Lutnick told reporters that U.S. officials had spoken with Mexico and Canada "all day" and might still work out a partial resolution with the two neighbors, adding that they needed to do more on the fentanyl front.

"I think there'll be some movement. It will not eliminate the tariffs ... but it might modify the tariffs somewhat," he said, pointing to a decision on Wednesday.

Lutnick said Trump was considering providing some relief to companies that comply with rules under the U.S.-Mexico-Canada Agreement on trade that is due for renegotiation in 2026.

Trump hailed his tariff agenda, his efforts to curb the fentanyl overdose crisis and a Ukraine minerals deal during a nationally televised address to a joint session of Congress on Tuesday night.

RETALIATION STARTS

Canadian Prime Minister Justin Trudeau described the tariffs as "a very dumb thing to do" and hit back with 25% tariffs on C$30 billion ($20.7 billion) worth of U.S. imports, including orange juice, peanut butter, wine, spirits, beer, coffee, appliances and motorcycles.

Mexican President Claudia Sheinbaum vowed retaliation but without details, saying she would announce Mexico's response on Sunday.

Lutnick's comments on negotiations lifted the Canadian dollar and the Mexican peso off of deep losses earlier on Tuesday, but Trump's tariffs prompted a global stock sell-off.

China responded immediately, announcing additional tariffs of 10%-15% on certain U.S. imports from March 10 and a series of new export restrictions for designated U.S. entities. Later it raised complaints about the U.S. tariffs with the World Trade Organization.

Trudeau said Canada would impose tariffs on another C$125 billion of U.S. goods if Trump's tariffs were still in place in 21 days, likely to include motor vehicles, steel, aircraft, beef and pork. Canada also will challenge the U.S. tariffs under rules of the WTO and the U.S.-Mexico-Canada free trade agreement.

"They've chosen to launch a trade war that will, first and foremost, harm American families," Trudeau said of the Trump administration.

Trudeau said that he believes Trump instead wants to weaken the Canadian economy to the point where Ottawa would consider annexation by the U.S.

Ontario Premier Doug Ford tore up a C$100 million contract with Elon Musk's Starlink network, banned U.S. firms from provincial government contracts and said that if Trump's tariffs persist, he will apply a 25% surcharge to Ontario electricity exports to the U.S.

"Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!" Trump wrote in a post on his private social media platform.

PRICE HIKES

The tariffs were already sparking some U.S. price increases, running counter to Trump's election vow to bring down living costs for Americans.

Target CEO Brian Cornell told CNBC that the retail giant would increase prices "over the next couple of days" on some seasonal grocery products such as avocados from Mexico.

Electronics retailer Best Buy also warned of potential higher prices. The company's CEO Corie Barry told analysts on a call that China remains the top source of products sold by the company, with Mexico in second place.

The 20% tariff on Chinese imports will apply to several key Chinese electronics categories untouched by prior duties, including smart phones, laptops, video game consoles, smart watches and speakers and Bluetooth devices.

"We estimate the tariffs could lead to a nearly $1,000 per household increase annually in the cost of goods," said Nationwide Mutual chief economist Kathy Bostjancic. "The strengthening dollar helps mitigate some of the inflation impact, which would otherwise be greater."

STACKING CHINA TARIFFS

An extra 10% duty on Chinese goods took effect Tuesday, adding to a 10% tariff imposed by Trump on February 4 and stacking on top of tariffs of up to 25% imposed on Chinese imports during Trump's first term.

Tariffs on some of these products increased sharply under former President Joe Biden last year.

China's retaliatory tariffs targeted a wide range of U.S. agricultural products including certain meats, grains, cotton, fruit, vegetables and dairy products.

U.S. farmers were hard hit by Trump's first-term trade wars, which cost them about $27 billion in lost export sales and conceded their share of the Chinese market to Brazil.

The tariffs on Mexican and Canadian products could have deep repercussions for a highly integrated North American economy and halt years of surprising resilience for U.S. growth.

The Federal Reserve Bank of Atlanta's GDPNow model showed a stunning shift to a 2.8% U.S. GDP contraction in the first quarter, from a 2.3% estimated growth last week.

(Reporting by David Lawder and Bo Erickson, additional reporting by David Shepardson and Andrea Shalal in Washington, David Ljunggren and Ismail Shakil in Ottawa, Kylie Madry and Ana Isabel Martinez in Mexico City and Joe Cash in Beijing; Editing by Alistair Bell and Rosalba O'Brien)