WASHINGTON, Feb 3 (Reuters) – President Donald Trump acknowledged that the hefty tariffs he imposed on Mexico, Canada, and China could lead to “short-term” economic pain for Americans, as global stock markets dipped over fears that the tariffs might ignite a damaging trade war.
Trump said he would speak with the leaders of Canada and Mexico on Monday, both of which have announced retaliatory tariffs, but played down expectations of a major shift in his position.
“I don’t expect anything dramatic,” Trump told reporters upon returning to Washington from his Mar-a-Lago estate in Florida. “They owe us a lot of money, and I’m sure they’re going to pay.”
Trump also confirmed that tariffs on the European Union would proceed, though he did not specify when. European leaders are expected to discuss the issue when they meet in Brussels on Monday.
“It will definitely happen with the European Union. I can tell you that because they’ve really taken advantage of us,” Trump said, criticizing their trade practices. “They don’t take our cars, they don’t take our farm products. They take almost nothing, and we take everything from them.”
The tariffs on Canada, Mexico, and China, outlined in three executive orders, are scheduled to take effect at 12:01 a.m. ET (0501 GMT) on Tuesday.
Economists warned that the tariffs—25% on Canada and Mexico and 10% on China, the U.S.’s top three trading partners—could slow global growth and drive up costs for American consumers.
Trump, however, argued the tariffs were necessary to address immigration, drug trafficking, and to bolster domestic industries. “We may have some short-term pain, and people understand that. But long term, the United States has been ripped off by virtually every country in the world,” he said.
The market response was immediate, with U.S. stock futures dropping around 2%. Asian markets, including Tokyo, Seoul, and Sydney, also saw declines of about 2%, while Chinese stocks in Hong Kong fell 0.8%, though mainland China was closed for Lunar New Year.
The Chinese yuan, Canadian dollar, and Mexican peso all weakened against the strong U.S. dollar. U.S. oil prices rose more than $1, while gasoline futures spiked nearly 3%. Businesses across North America braced for the impact of the new tariffs, which could affect industries ranging from automobiles to consumer goods to energy.
Trump’s tariffs will cover nearly half of all U.S. imports, potentially requiring the U.S. to significantly ramp up its manufacturing capabilities—a challenging task in the short term, according to analysts.
“Economic escalation in trade tensions is a lose-lose for all countries involved,” noted ING analysts.
Some experts warned the tariffs could push Canada and Mexico into recession and bring about “stagflation”—a mix of high inflation, stagnant growth, and high unemployment—in the U.S.
TUESDAY DEADLINE
While some analysts hoped for negotiations, especially with Canada and China, others noted that Trump’s tariffs may be temporary, as the White House has not set clear conditions for their removal.
Trump stated that he would maintain the tariffs until the U.S. addresses the national emergencies he cited, including fentanyl trafficking and illegal immigration.
China has announced plans to challenge the tariffs at the World Trade Organization and take other countermeasures, but has left the door open for talks. China’s foreign ministry, however, pushed back on Trump’s connection of fentanyl to trade, saying the U.S. problem should be addressed within its own borders.
Mexican President Claudia Sheinbaum, in a defiant speech, vowed resilience, asserting that tariffs wouldn’t solve the fentanyl issue. She announced retaliatory tariffs and planned to offer more details on Monday.
Canada, meanwhile, said it would pursue legal action under international trade law and announced retaliatory tariffs on $155 billion of U.S. goods, including peanut butter, beer, wine, lumber, and appliances.
Trump, who has been critical of Canada, suggested on Sunday that without its “massive subsidy,” Canada would “cease to exist as a viable country.”
NATIONAL EMERGENCY?
Trade experts warned that Trump’s tariffs could face legal challenges due to the extensive use of executive powers. Some Democrats decried the move as an abuse of power, while Republicans expressed concerns about rising consumer prices.
Even some Republicans, such as Senate Majority Leader Mitch McConnell, criticized the tariffs, arguing they would hurt American consumers.
A recent Reuters/Ipsos poll revealed that Americans were divided on the issue, with 54% opposing the tariffs and 43% in favor, with Republicans more supportive and Democrats more opposed.
INVESTORS LOOK AHEAD
Investors are weighing the effects of additional tariffs promised by Trump, including on oil and gas, steel, aluminum, semiconductor chips, and pharmaceuticals.
A European Commission spokesperson warned that the EU would respond firmly to unfair tariffs, while Volkswagen, Europe’s largest automaker, expressed hope for negotiations to avoid a trade conflict.
Automakers could be hit hard by the tariffs, especially since vehicles produced in Canada and Mexico are part of a deeply interconnected regional supply chain.
While Trump imposed a 10% duty on energy products from Canada, the move was softened after concerns raised by U.S. refiners and Midwestern states. At nearly $100 billion in 2023, crude oil imports from Canada make up a significant portion of U.S. imports, according to Census Bureau data.
White House officials indicated that Canada would lose its “de minimis” duty exemption for shipments valued under $800, addressing concerns about fentanyl and precursor chemicals entering the U.S. in small packages from Canada and Mexico.
