US tariffs imposed on Canada, Mexico and China

Background

Announcements by President Trump on Monday 3 March indicated tariff measures proceeding for Canada and Mexico as well as new additional measures being put in place for China.

The week in summary

On Tuesday 4 March, President Trump implemented his proposed tariff measures, which had been signposted since early February, of 25% tariffs on imports from Mexico and Canada (10% for some energy products). This action signals a significant escalation in the wider North American trading relationship and has started a trade war between the US and its closest trading partners. 

Additionally on Tuesday 4 March, President Trump announced an increase, of 10%, in the tariff rate applicable to Chinese goods. The additional 10% duty on Chinese goods, combined with a previous 10% tariff from 4 February, results in an additional 20% duty rate now applicable on all Chinese goods imported into the US. These new tariffs are in addition to the up to 25% tariffs imposed during Trump's first term on approximately $370 billion worth of US imports from China.  

Under former President Joe Biden, US tariffs on Chinese semiconductors doubled to 50%, and tariffs on Chinese electric vehicles quadrupled to over 100%. The new 20% tariff will now affect major US consumer electronics imports from China, including smartphones, laptops, and more

Retaliatory tariffs

China responded immediately with additional tariffs of 10%-15% on certain US imports starting March 10th, along with new export restrictions for specific US entities, imposing tariffs on various US agricultural products and placing 25 US firms under export and investment restrictions, citing national security concerns. China's Commerce Ministry claimed the US tariffs violated WTO rules and harmed economic cooperation stating that it would “undermine the basis for economic and trade cooperation between China and the US.”

Canada and Mexico, long-time tariff-free trading partners with the US, also planned immediate retaliation. Canadian Prime Minister Justin Trudeau condemns President Trump's tariffs stated that,

"It’s not in my habit to agree with the Wall Street Journal. But, Donald, they point out even though you’re a very smart guy, this is a very dumb thing to do."

Canada has imposed 25% tariffs on C$30 billion ($20.7 billion) of US imports from March 4th, with potential further tariffs on C$125 billion ($86.2 billion) if the US tariffs remained in place for 21 days. Targeted items include American beer, wine, bourbon, home appliances, and Florida orange juice. Mexico's economy ministry stated that Mexican President Claudia Sheinbaum is set to announce her response during the coming days in Mexico City.

President Trump’s Congress speech 

In his first address to Congress during his second term, President Trump declared that "America is back," promoting his recent policies amidst Democratic hostility. In the longest presidential speech to Congress on record, he praised Elon Musk's controversial efforts to overhaul the federal bureaucracy and asserted that his administration was "just getting started." 

On the issue of tariffs and his administration's policies, President Trump cemented our understanding that tariffs, and particularly reciprocal tariffs, are being used to level the playing field, stating: 

“If you don't make your product in America, however, under the Trump administration, you will pay a tariff, and in some cases a rather large one. Other countries have used tariffs against us for decades, and now it's our turn to start using them against those other countries.”

President Trump further confirmed that it is the intention for tariffs to begin from the start of April, stating “we're going to do it in April. I'm a very superstitious person. April 2, reciprocal tariffs kick in, and whatever they tariff us, other countries, we will tariff them”.

Interestingly, and perhaps worryingly, President Trump made specific reference to non-tariff barriers suggesting that “If they do nonmonetary tariffs to keep us out of their market, then we will do nonmonetary barriers to keep them out of our market. There's a lot of that, too, they don't even allow us in their market”. What this means in practice is yet to be determined but does raise the possibility of market access issues for companies.

Customs duty on e-services 

In a further Presidential Memorandum signed in late February, it has been identified that the US Trade Representative “shall identify tools the United States can use to secure among trading partners a permanent moratorium on customs duties on electronic transmissions”.  

This can be seen as a positive step given the WTO moratorium on customs duties on e-services is due to end in 2026 and there may be a consideration from certain countries to impose customs duties on such services.