U.S. tariffs send business, markets into turmoil

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U.S. President Donald Trump imposed sweeping new tariffs on imports from Canada, Mexico and China on Tuesday, a move that drove stock markets lower, threatened the bottom lines of businesses on all sides of the borders and prompted retaliatory actions from trading partners.

The tariffs, which had been threatened for months, mean U.S. buyers of most Canadian and Mexican goods will pay 25 per cent fees on those items, and tariffs on Chinese products will rise to 20 per cent. Canadian energy and critical minerals will face a lower tariff of 10 per cent.

Prime Minister Justin Trudeau vowed Tuesday to fight back against the “trade war” with retaliatory tariffs on specific U.S. products, and premiers across the country did their part by, for example, pulling U.S.-made alcoholic beverages off shelves and threatening to tear up deals with U.S.-based contractors.

The Trump administration has said the trade actions were prompted by “unchecked drug trafficking” that brings fentanyl into the country, although data show very little of that fentanyl originates from Canada.

Both Canada and Mexico have launched dramatic new border enforcement measures in recent weeks that the countries say have caused fentanyl smuggling to plummet, with Mr. Trudeau saying “less than half an ounce” had crossed the border last month. “We did everything we promised.”

U.S. Commerce Secretary Howard Lutnick appeared to move the goal posts on Tuesday, telling CNBC that the tariffs could be lowered if deaths in the U.S. attributed to fentanyl were to drop.

But the tariffs come as the U.S. has made a host of complaints about its relations with its top trading partners, and as Mr. Trump has said Canada and other NATO countries do not spend enough on their defence – and he has threatened to annex Canada and turn it into the “51st state.”

The U.S. is set to introduce a raft of new tariffs in the coming months that are expected to stack on top of each other. Next week, 25-per-cent tariffs on steel and aluminum are set to come into effect, and Canada is a top exporter of both metals. The Trump administration said it will unveil a new suite of tariffs on April 2 that are designed to address what it sees as unfair trade practices in various countries.

For example, Mr. Lutnick said there could be even higher tariffs imposed on Canadian products because of the country’s Goods and Services Tax. “Canada has a national sales tax. Another way to say it is a national tariff on our products,” he told CNBC, although the tax applies to goods irrespective of where they are manufactured.

Mr. Trump also posted on his Truth Social account that the U.S. would impose further retaliatory tariffs in response to Canada’s retaliatory tariffs, in a “like amount.”

Markets have reacted badly to the trade news this week as it became clear that the Trump administration was going forward with its plans.

The TSX was down 1.7 per cent on the day, and the S&P 500 and Dow were down by more than 1 per cent. All the gains made by U.S. indexes since Mr. Trump won election in November have essentially been erased recently. The price of West Texas Intermediate crude oil fell slightly to US$68, while the price of gold rose to a recent high of US$2,920.

At the time of Mr. Trump’s win, business leaders expressed optimism that the Republican President would usher in an era of lower regulation, taxes and eased antitrust enforcement that would be a boon to their bottom lines.

Company leaders and analysts had taken Mr. Trump’s tariffs threats as mere bluffs, however, and have changed their tunes in recent days as it became clear the new President was serious about upending the United States’ relationships with its closest trading partners.

The tariffs threatened to snarl supply chains for companies sourcing supplies from Canada, and much of the fees on consumer goods will be passed through with higher retail prices.

Like many larger retailers, Target’s stock was down Tuesday and chief executive officer Brian Cornell told CNBC the company would have to raise prices for products, such as fruits and vegetables, in the “next couple of days.”

The Alliance for Automotive Innovation, which represents almost all major automakers, said prices would rise substantially due to tariffs. The group also warned that moving all its manufacturing facilities back to the U.S., as Mr. Trump has demanded, was easier said than done.

“You just can’t relocate automotive production and the supply chain overnight. That’s the challenge and the dilemma: auto tariffs in North America could end up increasing costs on consumers before jobs come back to the country,” the group’s president, John Bozzella, told Reuters.

Mr. Trump is set to address Congress tonight in a State-of-the-Union-type speech.