Tariff Storm: How the U.S. New Duties Will Reshape Trade and Markets

President Donald Trump has announced that starting February 3, the U.S. will impose a 25% tariff on imports from Canada and Mexico and a 10% tariff on goods from China. This move aims to reduce the U.S. trade deficit and strengthen domestic manufacturing, but the initial market reaction has been negative. As a result of these tariffs, American consumers are expected to face price increases, while exporting countries will suffer significant financial losses.

The tariffs will directly impact key products imported by the U.S. from Canada, Mexico, and China. Canada is the largest energy supplier to the U.S., with 98% of its oil exports going to its southern neighbor (However, it is noteworthy that instead of a 25% tariff on petroleum products, only a 10% tariff will apply). The new tariffs will raise fuel prices in the U.S. and affect the oil refining industry. The lumber sector will also be affected, as Canada is the primary supplier of wood materials to the U.S. construction industry. For Mexico, the biggest blow will be dealt to the automobile and agricultural sectors—Mexican vehicle exports to the U.S. exceeded $100 billion in 2023, making them a critical part of the American market. The tariffs will force Mexican manufacturers to either raise prices or relocate production to the U.S. The prices of imported fruits and vegetables, including avocados, tomatoes, and citrus fruits, will also increase. In China’s case, the biggest impact will be felt in the electronics, technology equipment, and apparel sectors. A significant portion of smartphones and laptops sold in the U.S. are manufactured in China, and the tariffs will drive up their prices, increasing costs for consumers.

For Canada, the U.S. is the most important trading partner, with approximately three-quarters of its exports directed there. As a result, the Canadian energy and metallurgical industries will suffer considerable financial damage, posing a risk to jobs. Mexico’s economy is even more dependent on the U.S., with over 80% of its total exports going there. This means that production and employment in Mexico could face significant declines, particularly in the automotive industry. For China, the U.S. market is also important but with a lower direct dependency—about 17% of its exports are destined for the U.S. Although China has a larger and more diversified global trade network, the new tariffs will still cause losses in the technology sector, forcing Chinese companies to seek alternative markets. Additionally, China may experience indirect effects, as many of its products and raw materials are exported to Canada and Mexico before being re-exported to the U.S. This applies to industries such as automobiles, electronics, and industrial materials, where Canadian and Mexican manufacturers frequently use Chinese-made components. Consequently, higher tariffs on Mexican and Canadian imports to the U.S. could ultimately reduce Chinese exports as well, due to decreased demand for the components used in North American production.

The tariff announcement has caused instability in U.S. stock markets. On Friday, the S&P 500 fell by 0.5%, the Dow Jones dropped by 0.8%, and the Nasdaq declined by 0.3%. Automakers like Ford and General Motors saw their stock prices fall due to increased production costs from the tariffs. Technology companies that rely on Chinese-imported components also experienced declines. However, domestic steel manufacturers, such as U.S. Steel and Cleveland-Cliffs, could potentially benefit, as higher import tariffs may boost their domestic sales.

The impact of tariffs on the U.S. economy is multifaceted. On one hand, they could strengthen domestic production, but this will come at the cost of higher prices and strained relations with key trading partners. Canada and Mexico will likely introduce retaliatory measures, further complicating global trade. Ultimately, these tariffs could lead to higher costs for American consumers and disruptions for companies dependent on international supply chains.