Trump Imposes 25% Tariffs on Canada, Mexico, Citing Drugs and Trade Deficit

President Donald Trump announced Thursday that he will impose 25% tariffs on imports from Canada and Mexico, effective February 1st, citing the flow of fentanyl and large trade deficits as key reasons for his decision.

The announcement, made during a press conference in the Oval Office, sent shockwaves through global markets, with oil prices surging and the US dollar strengthening, while the Canadian and Mexican currencies plunged. US Treasury yields also pared gains.

"We'll be announcing the tariffs on Canada and Mexico for a number of reasons," Trump said, as reported by Bloomberg. "Number one is the people that have poured into our country so horribly and so much. Number two are the drugs, fentanyl and everything else that have come into the country. Number three are the massive subsidies that we're giving to Canada and to Mexico in the form of deficits."

Trump suggested that the 25% tariff rate could be the starting point, hinting that they "may or may not rise with time." However, he indicated that he was still considering whether to exempt oil imports from the tariffs, a major source of revenue for both Canada and Mexico. Trump stated that he would make a decision as soon as Thursday evening, basing his decision on the price of oil.

"We don't need the products that they have. We have all the oil that you need. We have all the trees you need," Trump added, referring to key Canadian exports.

Trump's move, anticipated by markets and global business leaders, follows a pattern of using trade tariffs as leverage in international negotiations. In recent days, he threatened and then retracted tariffs against Colombia in a dispute over deportations, leading some to speculate that he was using trade levies to extract policy concessions.

Trump also confirmed that he would proceed with tariffs on China, though he did not specify the levy. He previously stated that the tariff would be 10%. Trump cited China's failure to prevent fentanyl and the chemicals used to produce the drug from entering the US as the justification.

"With China, I'm also thinking about something because they're sending fentanyl into our country, and because of that, they're causing us hundreds of thousands of deaths," Trump said. "So China is going to end up paying a tariff also for that, and we're in the process of doing that."

Trump has ordered his administration to investigate whether China complied with a trade deal struck during his first term, setting the stage for potential tariffs against the world's second-largest economy.

The tariffs on Canada and Mexico, major trading partners and export markets for the US, threaten to have significant economic consequences, potentially triggering a trade war and undermining the North American Free Trade Agreement (NAFTA). Both countries have pledged to retaliate with their own tariffs.

"If these tariffs go into effect, Canada will respond," Canadian Ambassador to the US Kirsten Hillman said. "This is not something that we want to do. We do not want to get into a tariff-back-and-forth with the United States. It's not good for Canada, Canadians and Canadian workers and it's not good for the United States, Americans and American workers."

Hillman noted that Canada has already taken steps to address Trump's concerns about border security, including deploying additional drones and helicopters. Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum have both spoken to Trump in an attempt to avert the tariffs.

In the first 11 months of 2024, US trade with Canada totaled $699 billion and $776 billion with Mexico. The tariffs could have a significant impact on specific industries, such as the auto industry and the energy sector. Shares of US automakers Ford Motor Co. and General Motors Co. fell following the announcement.

"President Trump's tariffs will tax America first," said Matthew Holmes, executive vice president at the Canadian Chamber of Commerce. "From higher costs at the pumps, grocery stores and online checkout, tariffs cascade through the economy and end up hurting consumers and businesses on both sides of the border. This is a lose-lose."

Trump, a proponent of tariffs, argues that they will stimulate domestic manufacturing. However, industry groups warn that tariffs could disrupt supply chains and harm existing factories by increasing the cost of raw materials.