Confronting customs duties

The new 25% tariffs imposed by US President Donald Trump on imports from Mexico and Canada took effect yesterday, along with a doubling of duties - to 20% - on Chinese products, generating new trade conflicts with the US's three largest trading partners, Reuters reports.

The tariff measures, announced on Monday evening, could affect transactions worth almost $2.2 trillion in annual bilateral US trade. The taxes came into effect hours after Trump said that all three countries in question had failed to do enough to stop the flow of fentanyl (a deadly opioid) and its chemical precursors to the US.

China responded immediately after the deadline, announcing additional tariffs of 10%-15% on certain U.S. imports starting March 10, and a series of new export restrictions for some U.S. companies.

Canada and Mexico, which have enjoyed a virtually tariff-free trade relationship with the U.S. for three decades, are preparing to retaliate against their longtime ally. Canadian Prime Minister Justin Trudeau said Ottawa would respond with immediate 25% tariffs on C$30 billion ($20.7 billion) worth of U.S. imports and another C$125 billion ($86.2 billion) if Trump's tariffs are still in effect in 21 days. He had previously said his country would target U.S. beer, wine, bourbon, appliances and orange juice.

"The tariffs will disrupt an incredibly successful trade relationship," Trudeau said, adding that they would violate the U.S.-Mexico-Canada free trade agreement signed by Trump in his first term.

Ontario Governor Doug Ford told NBC that he was prepared to cut off nickel shipments and electricity from his province to the U.S. in retaliation.

Mexican President Claudia Sheinbaum said on Tuesday that her country would respond to the 25 percent tariffs imposed by the United States with its own tariffs on American goods. Sheinbaum said she would announce the products Mexico would tax on Sunday at a public event in Mexico City's central plaza. "There is no reason, no justification to support this decision that will affect our people and our nations," Sheinbaum said, according to whec.com.

• Additional tariffs on China

The additional 10% tax on Chinese goods comes on top of a 10% tariff Trump imposed on February 4 to punish Beijing over the fentanyl overdose crisis in the US. The cumulative 20% tax also comes on top of tariffs of up to 25% that Trump imposed during his first term on $370 billion worth of US imports.

For some of these products, US tariffs rose sharply last year under former President Joe Biden. These included a doubling of tariffs on Chinese semiconductors to 50% and a quadrupling of tariffs on Chinese electric vehicles to more than 100%.

The 20% tax will apply to several major US imports of consumer electronics from China that were not affected by previous tariffs, including smartphones, laptops, video game consoles, smartwatches and Bluetooth speakers and devices.

The new tariffs announced by China yesterday target a wide range of US agricultural products, including certain types of meat, grains, cotton, fruits, vegetables and dairy products. It is worth noting that American farmers have been hit hard by the trade wars during Trump's first term, which cost the country about $27 billion in lost export sales and ceded a share of the Chinese market to Brazil.

Beijing has also imposed export and investment restrictions on 25 US companies, citing national security concerns. Ten of these companies were targeted for selling arms to Taiwan.

China's Ministry of Commerce said the US tariffs violate World Trade Organization (WTO) rules and "undermine the basis of economic and trade cooperation between China and the US."

• Recession fears

Tariffs on Mexican and Canadian goods could have far-reaching repercussions for a highly integrated North American economy that relies on cross-border shipments for manufacturing, refining crude oil and processing agricultural goods.

"The US administration's reckless decision is pushing Canada and the US towards recession, job losses and economic disaster," said Candace Laing, CEO of the Canadian Chamber of Commerce, in a statement.

She said the US tariffs would not lead to a "golden age" that Trump has been longing for, but would raise costs for consumers and manufacturers and disrupt supply chains. "Tariffs are a tax on the American people," Candace Laing stressed.

Matt Blunt, president of the American Automotive Policy Council, which represents Detroit-based automakers, called for vehicles that meet the regional content requirements of the US-Mexico-Canada Agreement to be exempt from the tariffs.

On Monday, just before Trump announced the new tariffs, official data showed that factory-gate prices rose to near three-year highs, suggesting that a new wave of tariffs could soon hit production.

• Markets down

The confirmation of the new US tariffs sent global financial markets lower, with stocks falling and safe-haven assets rising. Both the Canadian dollar and the Mexican peso fell against the US currency.

London's FTSE 100 index was down 0.8% at 1:36 p.m. local time, Germany's DAX was down 2.7% and Paris' CAC 40 was down 1.8%. In Asia, Tokyo's Nikkei 225 index lost 1.2%, Shanghai's CSI 300 was down 0.08% and Hong Kong's Hang Seng was down 0.3%.

On Monday evening, the US Nasdaq Composite index fell 2.6%, the Dow Jones Industrial Average fell 1.5% and the S&P 500 fell 1.8%. Yesterday morning, when US markets opened, the Dow Jones was down 1%, the S&P 500 down 0.9% and the Nasdaq Composite down 1%.

In this context, investors turned to traditional safe-haven currencies, the Japanese yen and the Swiss franc, which both rose by almost 1%.

The Canadian dollar fell by about 0.45%, to 1.4471 units/US dollar, after reaching a low of the last month on March 3, when the tariffs were confirmed (1.4542 units/US dollar).

The Mexican peso fell by about 0.3%, to 20.76 units/US dollar, after previously reaching its lowest level since February 3.

Also yesterday, the euro reached its highest level since December 10 against the US currency: 1.0548 dollars/euro, according to Investing.com data. The evolution was fueled by expectations regarding the increase in European defense spending, which will stimulate the region's economy.