Donald Trump has fired the first shot. Goods arriving in America from Canada and Mexico will meet tariffs of 25% as soon as he returns to the White House, the president-elect announced on November 25th. Mr Trump also said that he would impose additional 10% tariffs on Chinese goods. With two months to go before his inauguration, the promise is rippling through financial markets. Mr Trump is not wasting any time in seeking to exert America’s influence.
Since his victory in the presidential election, some investors had speculated (and hoped) that campaign-trail tariff threats might be used merely as leverage to win concessions on other issues, without being implemented in full. Scott Bessent, a former hedge-fund manager who Mr Trump nominated to be treasury secretary on November 22nd, had suggested that Mr Trump’s tariffs could be used as an opening gambit.
There is plenty of uncertainty about Mr Trump’s latest salvo, not least whether he would actually be able to implement the tariffs on his first day. But Mr Trump’s pledge suggests that steep tariffs will be the priority, and any relief will arrive only after concessions. In posts on Truth Social, his own social-media app, Mr Trump said that tariffs would stay in place until the flow of drugs and immigrants into America had been halted. The Mexican peso dropped by 1.4% to almost 21 to the dollar after Mr Trump’s remarks; the Canadian dollar fell by 0.8%, to 1.41 per greenback, its lowest in more than four years.
A slower introduction of tariffs would have spread out the economic damage, giving businesses dependent on cross-border trade time to prepare and adjust. This approach will front-load commercial disorder. The tariffs, which Mr Trump intends to raise by executive order, could break the terms of the US, Mexico and Canada Free Trade Agreement (USMCA), which replaced the North American Free Trade Agreement during Mr Trump’s first administration. Governments in Ottawa and Mexico City will struggle to prevent the incoming administration from violating the agreement, which is due to be reviewed in July 2026.
Businesses are already building stockpiles of imported goods that might soon face steep tariffs. America’s National Retail Federation, an industry group, expects import volumes to rise by 14% year-on-year in November, compared with a 1% increase it forecast before the election. Mr Trump’s latest announcement is likely to accelerate this stockpiling.
The sudden increase in the cost of imported products will raise prices for American consumers. Despite its own oil-and-gas boom, America still imports 4m barrels of crude a day from Canada, for instance, much of which goes to the Midwest. Companies will suffer, too. Carmakers, which have built factories in Mexico to produce vehicles for the American market, are especially vulnerable. America’s Ford and General Motors are among the companies that make cars in Mexico, along with Japan’s Toyota and Nissan, and Germany’s Volkswagen and BMW.
Although threats to the commercial relationship between America and China have attracted more attention, the economic damage to America’s neighbours has the potential to be far greater. Last year only 15% of China’s goods exports went to America directly, compared with 78% of Canada’s and 80% of Mexico’s. Most trade travels by land, and will be difficult to redirect to alternative markets.
As the arrival point for many immigrants entering America illegally, its southern neighbour has been the subject of particular ire from Mr Trump. “The number of friction points with Mexico is just enormous,” said Adam Posen of the Peterson Institute for International Economics, speaking before Mr Trump’s announcement. “Mexico is going to be both the most harmed, and the most likely to be used as the demonstration case.”
Some Canadian politicians had hoped to strike a deal with Mr Trump to avoid tariffs. Doug Ford, premier of Ontario and chair of the Council of the Federation, which represents the country’s provinces, had called for Canada to reach a separate bilateral agreement with America, cutting Mexico loose. Justin Trudeau, the Canadian prime minister, has emphasised the country’s common cause with America in criticism of China’s trade practices. Such efforts do not seem to have swayed Mr Trump. For both of America’s neighbours, the question now is what exactly Mr Trump will accept to drop the tariffs.
Chinese policymakers may, on the other hand, be a little relieved by the announcement. Although Canada and Mexico would be hit hard by the tariffs Mr Trump proposed on November 25th, the levy on Chinese goods is lower than the 60% he had previously suggested. Nomura, a bank, nevertheless expects that additional tariffs of 10% would produce a 2% fall in the Chinese yuan, reducing it to around 7.4 to the dollar, its lowest in 17 years. And there is always the potential for escalation. “No one will win a trade war or a tariff war,” warned China’s embassy in Washington.
Governments around the world were already scrambling to find ways to avoid the tariffs Mr Trump had promised. These efforts will now be redoubled, even as Mr Trump’s latest announcement lowers their chance of success. The impact on global commerce will be immediate and extensive—and American consumers will pay the price.
