Retaliation, inflation, disruption: What you need to know about Trump tariffs

In a sign of concern, the U.S. stock market dived on Friday after the news that Donald Trump would push forward with his months-old tariff threats against some of the United States' largest trading partners.

The U.S. president confirmed that 25 percent tariffs on imports from Canada and Mexico will be implemented starting February 1, White House press secretary Karoline Leavitt said earlier on Friday.

Speaking briefly to reporters on the same day, Trump said he would impose sweeping duties on chips, oil and gas, steel, and aluminum, adding that he was considering imposing tariffs on oil and gas starting February 18.

However, he noted that crude oil imports from Canada are likely to be taxed at a lower rate of 10 percent. He also indicated that broader tariffs on oil and natural gas would be introduced in mid-February, remarks that sent oil prices higher.

Trump also said late Friday that he would "absolutely" impose tariffs on imports from the European Union, though he stopped short of providing a specific timetable.

Retaliation set to follow

Trump's tariffs will likely invite retaliation. Canadian Prime Minister Justin Trudeau said on Friday that Canada is prepared to deliver a "purposeful, forceful but reasonable, immediate" response if Trump imposes tariffs on Canadian imports.

Canada is the largest supplier of U.S. energy imports – including crude oil, natural gas and electricity. Canada's share of U.S. crude oil imports increased from 33 percent (924 million barrels) in 2013 to 60 percent (1.4 billion barrels) in 2023, according to a U.S. Congressional Research Service report updated in January.

Last month, when asked whether the Canadian government would cut off energy exports to the U.S. in retaliation for Trump's tariffs, Canadian Foreign Affairs Minister Melanie Joly said Ottawa is not ruling out any countermeasures. "Everything is on the table," she said.

Canada has drawn up detailed targets for immediate tariff retaliation, including duties on Florida orange juice, a source familiar with the plan told Reuters. Canada has a broader list of targets that could reach C$150 billion ($105 billion) worth of U.S. imports, but would hold public consultations before acting, the source said.

Mexico also responded quickly. Mexican President Claudia Sheinbaum said on Friday she would "wait with a cool head" for Trump's tariff decision and was prepared to continue a border dialogue.

However, Sheinbaum emphasized that Mexico has a "Plan A, Plan B, Plan C" depending on the U.S. government's decision.

She previously stated that Mexico would retaliate, arguing that Trump's tariffs could cost 400,000 U.S. jobs and drive up prices for U.S. consumers.

The primary products Mexico exports to the U.S. include computers, cars, and motor vehicle parts and accessories. Meanwhile, the key products the U.S. exports to Mexico are refined petroleum, motor vehicle parts and accessories, and petroleum gas, according to the Observatory of Economic Complexity, a leading data visualization tool for international trade data.

'Tax America first'

Most economists estimate that the sweeping import taxes proposed by the Trump administration, and the likely retaliation, will disrupt economic activity worldwide.

In its latest World Economic Outlook report, published in January, the International Monetary Fund (IMF)'s chief economist, Pierre-Olivier Gourinchas, wrote that the policies Trump has promised to introduce "are likely to push inflation higher in the near term."

Other policies of the Trump administration, such as higher tariffs or immigration curbs, will "play out like negative supply shocks, reducing output and adding to price pressures," said Gourinchas.

Business executives, as well as economists, have warned that the tariffs would increase the prices of imports such as aluminum and lumber from Canada, fruits, vegetables, beer and electronics from Mexico, and motor vehicles from both countries.

"President Trump's tariffs will tax America first," said Matthew Holmes, public policy chief at the Canadian Chamber of Commerce.

"From higher costs at the pumps, grocery stores and online checkouts, tariffs cascade through the economy and end up hurting consumers and businesses on both sides of the border."

Liu Ying, a researcher at the Chongyang Institute for Financial Studies at Renmin University of China, said higher tariffs will increase import costs for the U.S., potentially pushing U.S. inflation up to 3 percent, which could alter the Federal Reserve's interest rate policies.

If the tariffs are implemented, many countries may shift their trade to regions with lower tariff barriers, leading to a realignment of global trade patterns, Liu told China Media Group.

Consequently, the tariffs could not only drive up domestic prices in the U.S. and hinder economic growth but also cause volatility in global financial markets and disrupt global supply chains, Liu said.

(With input from agencies)