President Donald Trump speaks at the Republican Governors Association conference on Feb. 21, 2025. White House photo/Handout
President Donald Trump’s long-threatened tariffs against Canada and Mexico went into effect Tuesday, putting global markets on edge and setting up costly retaliations by the United States’ North American allies.
Starting just past midnight, imports from Canada and Mexico are now to be taxed at 25 percent, with Canadian energy products subject to 10 percent import duties.
The 10 percent tariff that Trump placed on Chinese imports in February was doubled to 20 percent, and Beijing retaliated Tuesday with tariffs of up to 15 percent on a wide array of U.S. farm exports. It also expanded the number of U.S. companies subject to export controls and other restrictions by about two dozen.
Gov. Maura Healey’s office said Monday that it believes the tariffs could add $910 million per year to Massachusetts’ consumers bills, mostly via higher costs on gasoline and home heating oil. Massachusetts imports much of its supply of these products, plus diesel fuel, from Canada.
According to the National Association of Home Builders, nearly 70 percent of the $8.5 billion worth of lumber imported into America came from Canada in 2023. And of the $456 million worth of lime and gypsum products imported into the U.S. in 2023 – a category that includes drywall – 71 percent came from Mexico.
Canadian Prime Minister Justin Trudeau said his country would slap tariffs on more than $100 billion of American goods over the course of 21 days. Mexico didn’t immediately detail any retaliatory measures.
The U.S. president’s moves raised fears of higher inflation and the prospect of a trade war even as he promised the American public that taxes on imports are the easiest path to national prosperity. He has shown a willingness to buck the warnings of mainstream economists and put his own public approval on the line, believing that tariffs can fix what ails the country.
“It’s a very powerful weapon that politicians haven’t used because they were either dishonest, stupid or paid off in some other form,” Trump said Monday at the White House. “And now we’re using them.”
Stocks Drop Sharply
U.S. markets dropped sharply Monday after Trump said there was “no room left” for negotiations that could lower the tariffs. Shares in Europe and Asia were mostly lower Tuesday after they took effect.
The S&P 500 index was down 1.8 percent Monday at the close in the index’s biggest drop this year. The Dow Jones Industrial Average dropped 649 points, or 1.5 percent, and the Nasdaq composite slumped 2.6 percent, down 9 percent from its mid-December high.
The indexes continued their slide Tuesday morning.
The S&P 500 fell 0.9 percent, with nearly every sector in the benchmark index losing ground. The Dow Jones Industrial Average shed 517 points, or 1.2 percent, as of 1:40 p.m. Eastern time.
The Nasdaq composite fell 0.2 percent. The tech-heavy index briefly reached a 10 percent decline from its most recent closing high, which is what the market considers a correction, before paring some losses.
The Canada and Mexico tariffs were supposed to begin in February, but Trump agreed to a 30-day suspension to negotiate further with the two largest U.S. trading partners. The stated reason for the tariffs is to address drug trafficking and illegal immigration, and both countries say they’ve made progress on those issues. But Trump has also said the tariffs will only come down if the U.S. trade imbalance closes, a process unlikely to be settled on a political timeline.
The tariffs may be short-lived if the U.S. economy suffers. But Trump could also impose more tariffs on the European Union, India, computer chips, autos and pharmaceutical drugs. The American president has injected a disorienting volatility into the world economy, leaving it off balance as people wonder what he’ll do next.
“It’s chaotic, especially compared to the way we saw tariffs rolled out in the first [Trump] administration,” said Michael House, co-chair of the international trade practice at the Perkins Coie law firm. “It’s unpredictable. We don’t know, in fact, what the president will do.’’
Trump’s Goals Different, This Time
The world economy is now caught in the fog of what appears to be a trade war.
The White House would like to see a drop in seizures of fentanyl inside the United States, not just on the northern and southern borders. Administration officials say that seizures of fentanyl last month in everywhere from Louisiana to New Jersey had ties to foreign cartels.
But one of those goals that Trump has cited more often than last time is using tariffs to raise revenue for the government, Diane Swonk, chief economist at the giant accounting firm KPMG, noted. Trump and some of his officials have talked about substituting tariff revenue for income taxes. If so, that would mean keeping the tariffs in place even if countries like Canada and Mexico agreed to Trump’s demands on other issues, such as immigration restrictions.
“The breadth and scope are different,” Swonk said. “The goals are different. It’s not just one country, we’re talking about multiple countries at the same time. And the rest of the world is ready to retaliate.”
Damon Pike, technical practice leader for customs and trade services at the tax and consulting firm BDO, suggested the responses of other countries could escalate trade tensions and possibly increase the economic pressure points.
“Canada has their list ready,” Pike said. “The EU has their list ready. It’s going to be tit for tat.’’
President Touts $100B Investment
The Trump administration has suggested inflation will not be as bad as economists claim, saying tariffs can motivate foreign companies to open factories in the United States. On Monday, Trump announced that Taiwan Semiconductor Manufacturing Company, the computer chipmaker, would be investing $100 billion in domestic production.
Still, it can take time to relocate factories spread across the world and train workers with the skills they need.
Greg Ahearn, president and CEO of The Toy Association, said the 20 percent tariffs on Chinese goods will be “crippling” for the toy industry, as nearly 80 percent of toys sold in the U.S. are made in China.
“There’s a sophistication of manufacturing, of the tooling,” he said. “There’s a lot of handcrafting that is part of these toys that a lot of people don’t understand … the face painting, the face masks, the hair weaving, the hair braiding, the cut and sew for plush to get it to look just so. All of that are very high hands, skilled labor that has been passed through generations in the supply chain that exists with China.”
For a president who has promised quick results, Ahearn added a note of caution about how quickly U.S. factories could match their Chinese rivals.
That can’t be replicated overnight,” he said.
Associated Press staff writers Anne D’Innocenzio, Lisa Mascaro, Paul Wiseman, Christopher Rugaber and Damian Troise contributed to this report.
