Uncertainty as US imposes tariffs on China, Mexico and Canada

President Trump’s 25% tariffs on goods from Mexico and Canada took effect first thing Tuesday. Canada responded with plans to impose 25% tariffs on about $100 billion of U.S. imports.

Canadian Prime Minister Justin Trudeau said that President Trump is acting in “bad faith” and the U.S. president threatened more tariffs. Mexico’s president Claudia Sheinbaum also said the country would also retaliate, with a range of moves to be announced Sunday.

The U.S. also introduced an extra 10% tariff on Chinese imports overnight, adding to a levy imposed a month ago, and other existing duties. China swiftly announced retaliatory tariffs on U.S. agricultural goods, and other measures against American companies. Beijing also filed a lawsuit with the World Trade Organization.

Stocks recovered some ground after early sharp declines: the Dow industrials were down Tuesday afternoon, while the Nasdaq Composite turned positive and gold rose. Meanwhile, Wall Street’s “fear gauge” picked up after stocks slid Monday in response to Trump confirming tariffs would go ahead.

Some economists say that American importers and businesses will most likely pass their costs onto consumers, which could mean that Americans see higher prices at the grocery store.

The US has an advantage over China, Mexico and Canada in that it has the largest, most robust, and most diversified economy. In the long term, the pain from these tariff wars will hurt other countries much more than it will hurt the US.

But on this front, the US is more politically divided. China is an authoritarian state, so the CCP will have no trouble enacting their retaliations as long as they deem necessary, regardless of public opinion.

Canada and Mexico are much smaller economies, but their people are more politically united in response to what they see as unprovoked aggression from the US. The United States is extremely divided along political lines.

The political left already despises Mr Trump, and will attempt to put maximum pressure on the President. In fact, the only thing that could keep the US from winning this trade war (at a cost) is if the public comes out against the trade wars strongly enough. The public for now approves of Trump’s actions, but that could easily change.

If the US public was as fully behind Trump’s tariffs as the Canadian public is behind Canada’s response, there would only be one ending to this; at some point, Canada (and Mexico) would have to acquiesce.

But because the US is seen as the instigator, and could have half or more of its own population putting pressure on Trump to stop the tariffs, the outcome of this trade war is uncertain.