US President Donald Trump has intensified trade tensions by announcing a 25% tariff on all goods imported from Mexico and Canada, effective from Tuesday, February 4th. This bold move has sparked immediate reactions, with Canada unveiling its own set of counter-tariffs targeting CAD155 billion worth of US imports. This fresh round of tariffs marks a significant escalation in trade relations across North America.
In a strategic exemption, the US will impose a lower 10% tariff specifically on energy imports from Canada. This decision aims to mitigate potential disruptions in energy supplies while still pressing for economic leverage. In retaliation, Canada has declared its intent to implement 25% counter-tariffs on a third of its trade with the US, impacting goods valued at CAD30 billion on the same day as the US tariffs take effect. The remaining tariffs will roll out 21 days later.
Economic analysts project that the US economy may experience a moderate short-term impact, with real GDP potentially declining by 0.4%, excluding any influence from counter-measures. Despite this, fiscal easing measures are expected to sustain the medium-term economic outlook. Meanwhile, the Tax Foundation estimates that the new tariffs could bolster US public revenues by USD110-120 billion annually.
The ripple effects of these tariffs are already being felt in global markets. The US Dollar has strengthened, while US equity futures have seen a 3% decline from their peak last Friday. Concurrently, the EUR/USD exchange rate has dipped below the 1.0300 mark amid growing concerns about the broader economic implications of these trade measures.
International responses have varied. While China has indicated it will adopt "necessary counter-measures," specifics remain undisclosed. The Chinese government is set to increase its tariff rates by 10 percentage points in response to the escalating trade tensions.
Canada's counter-tariffs are anticipated to introduce additional challenges to growth. With the US accounting for nearly 75% of Canadian exports, any disruption in trade relations poses significant risks to Canada's economy. Conversely, Canada represents only around 16% of US exports, suggesting a more contained impact on the American side.