(The Center Square) – President Donald Trump sent stocks on a deep slide Monday afternoon after announcing that tariffs against two of the nation’s top trading partners would go into effect Tuesday because there was “no room left” for negotiations with America’s neighbors.
“Tomorrow, tariffs – 25% on Canada, and 25% on Mexico – and that will start tomorrow,” Trump said at the White House. “So they’re going to have a tariff, and what they have to do is build their car plants, frankly, and other things, in the United States, in which case you have no tariffs.”
All major stock markets fell with the president’s remarks, shrugging off U.S. investment news Trump made the same day. The Dow dropped 650 points. Trump has previously said the tariffs would remain in place until Mexico and Canada stop of the flow of migrants and fentanyl into the U.S.
Migration and drug problems at both borders have been problems for decades that all three countries have previously worked to address without a significant decrease in drug flows, though the border crisis under the Biden administration exasperated the flow of fentanyl into the U.S.
On Feb. 1, Trump ended decades of duty-free trade between the U.S., Mexico, and Canada with a 25% tariff on imported goods from the two countries, with a lower 10% tariff on Canadian energy resources.
Trump said he’d keep the tariffs in place until the illegal fentanyl trade subsided. He also added a 10% tariff on imports from China over that country’s role in producing the chemicals needed to make fentanyl, a powerful opioid blamed for the majority of U.S. overdose deaths.
Two days after hitting U.S. neighbors with tariffs, Trump relented after reaching 30-day deals with both Mexico and Canada.
Mexican President Claudia Sheinbaum said Mexico will immediately reinforce the border with 10,000 members of the National Guard in a move to stop drug trafficking. Canadian Prime Minister Justin Trudeau also promised to reinforce the northern U.S. border in exchange for a pause on tariffs.
China hit back with limited tariffs on U.S. imports. The Customs Tariff Commission of the State Council of China put additional tariffs on some U.S. imports while filing a complaint with the World Trade Organization.
The United States-Mexico-Canada Agreement, or USMCA, governs trade between the U.S. and its northern and southern neighbors. It went into force on July 1, 2020, and Trump signed the deal. That agreement continued to allow for duty-free trading between the three countries.
U.S. goods and services trade with USMCA totaled an estimated $1.8 trillion in 2022. Exports were $789.7 billion and imports were $974.3 billion. The U.S. goods and services trade deficit with USMCA was $184.6 billion in 2022, according to the Office of the United States Trade Representative.
In February, the S&P Global Ratings economics team, in its first high level estimates, found the potential effects of the tariffs were “overwhelmingly negative,” according to the report.
S&P analysts said the tariffs could slow gross domestic product growth, boost unemployment and inflation. It noted that “the effects on the U.S. are smaller than for trading partners.” Gross domestic product, or GDP, is a measure of economic output.
