The News
US President Donald Trump said Monday that tariffs on Canada and Mexico will go into effect Tuesday, triggering a rapid slide in the US stock market.
“Tomorrow, tariffs — 25 percent on Canada 25 percent on Mexico,” the president said. “So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs.”
Trump added there was “no room left,” when asked if there was still room for America’s neighbors to reach a deal to avoid the levies. “They’re all set.”
US Commerce Secretary Howard Lutnick had earlier indicated that the terms of the tariffs had not yet been finalized, leading some to speculate that the duties could be less onerous than expected.
The Nadsaq Composite slid 3%, while the S&P dropped 2.2% in the minutes after Trump’s announcement.
SIGNALS
Economists fear 25% tariffs would hurt US economy
While Trump officials have argued the tariffs will boost US government revenue and job numbers, many economists believe raising duties on America’s neighbors will ultimately backfire. Tariffs of 25% could reduce US GDP growth by an estimated 0.25-0.32 percentage points, depending on how Canada and Mexico respond, a Brookings Institution analyst predicted, as well as the potential loss of American jobs and a rise in inflation given the intertwined nature of the three countries’ economies. “Increasing tariffs from zero to 25 percent overnight is likely to be much more disruptive to those now highly integrated North American supply chains than anything President Trump did in his first term,” the State Department’s former chief economist told The New York Times.
Trump suggests time for negotiation has passed
Donald Trump’s threatened tariffs on Canada and Mexico had earlier been delayed after both countries offered concessions, and the Trump administration initially signaled that that the details remain up for negotiation with Commerce Secretary Howard Lutnick describing a “fluid situation.” Still, the White House seems more prepared to move forward than before: Trump on Sunday tweaked several of his early executive orders to enable tariffs on imports that would otherwise have been exempt, Bloomberg reported. Trump’s supporters have argued that the president’s shifting trade policy approach is effective in that it keeps the rest of the world on their toes, unsure of his next moves, The Washington Post wrote.
American’s confidence in the economy is falling
Donald Trump was elected on a promise to restore US economic vitality, promising to create a “new golden age,” but Americans and businesses are growing increasingly concerned about the country’s financial prospects. Most Americans think the economy is worse now than it was last May, according to recent polling, while monthly consumer spending in January saw its biggest decline in almost four years. “[Trump’s] arrival in the White House is both causing and coinciding with a period of weakness for America’s economy,” The Economist argued, stressing that while the president cannot be held solely responsible, tariff threats, tax cuts, and disruptions to the federal workforce could exacerbate the problem.