Tariffs War 2025 Begins – Why Canada & Mexico Are More Upset & Angrier Than China With Trump’s Trade War

Financetwitter:

Tariffs War 2025 Begins – Why Canada & Mexico Are More Upset & Angrier Than China With Trump’s Trade War


February 3rd, 2025 by financetwitter


With friend like the United States, Canadians and Mexicans do not need enemies. President Donald Trump has finally made good on a campaign promise to raise tariffs on almost everyone – both friends and foes. First, he slapped a 25% tariff on all goods imported from Canada and Mexico, except Canadian oil and energy products, which will face a 10% tariff.

Then, he imposed duties of 10% on all Chinese goods coming into the country. Now, Mr Trump says U.S. tariffs on imports from the E.U. “will definitely happen”. Last year, the U.S. ran a deficit of US$213 billion (£173 billion) with the European Union. Even closest ally Britain isn’t spared, as Trump said the U.K. is “out of line”, even though the US doesn’t run as high a trade deficit with Britain.

While Europe has started to panic and running around like a headless chicken after Trump’s threat, it was neighbouring Canada and Mexico that are extremely mad and furious. On the contrary, China, supposedly the biggest threat to the U.S. – militarily, economically and politically – was quite relaxing and has no plan to retaliate in kind for the time being.


As President Trump triggers a trade war with Canada, Mexico and China – the country’s three largest trading partners, accounting for more than a third of the products brought into the United States – the world is waiting to see the type of damages, which would not only hit the U.S. income, hurt employment and increase inflation, but also spark global recession and even depression.

Canada and Mexico’s strategy is to hopefully force Trump to make a U-turn by making Americans feel the pain too. Preparing to retaliate, outgoing Canadian Prime Minister Justin Trudeau said his country would impose 25% tariffs on more than US$105 billion of U.S. goods. Warning the impact of American jobs in auto and manufacturing industries, he said – “We didn’t ask for this, but we will not back down,”

The Canadians’ first wave will affect US$20 billion of imports from the U.S., including alcohol, coffee, clothing and shoes, furniture and household appliances. But the precision strike would target products from Republican-leaning states, such as whiskeys from Tennessee, peanut butter from Kentucky, oranges from Florida, motorcycles in Pennsylvania and appliances from South Carolina.


A second wave on an additional US$85 billion of American goods would include tariffs on cars and trucks, agricultural products, dairy products, steel and aluminum and aerospace products. It’s not hard to understand why Canada is aggressively fighting back. As the U.S. most exposed trading partner, Canada could easily plunge into a painful economic recession if Trump’s tariffs continue for months.

The trade war between Canada and the U.S. has spread to average Joes and Janes where Canadians are feeling a sense of betrayal. Trudeau reminded Americans that Canadian troops fought alongside them in Afghanistan and helped respond to many disasters in the U.S., including wildfires in California and Hurricane Katrina, whilst Canadian hockey fans booed the American national anthem at two National Hockey League games.

Already, calls for a boycott of American products has started. Provinces of Ontario, British Columbia, Quebec, Manitoba and Nova Scotia planned to remove American liquor brands from store shelves. From Colgate toothpaste to California wine, a plan has begun to put “Made in Canada” tags alongside Canadian products at supermarkets to discourage buying American products.


But Canada can’t fight the U.S. alone. Trudeau has roped in Mexican President Claudia Sheinbaum to work together. Sheinbaum said Mexico’s response will include tariff and non-tariff measures. Her plan is to slap tariffs on specific U.S. goods from Republican strongholds. Mexican citizens in the U.S., as well as other Latinos, have decided to boycott American products too.

Organizers of movement such as “Freeze Latino Movement”, for example, have called on the entire Latino community to stop shopping at commercial chains like Walmart and Costco, as well as restaurants such as Starbucks and McDonald’s to send a message to the Trump administration. They have also targeted Coca-Cola, whose diet drink is the favourite of President Donald Trump.

The impact as a result of Trump’s 25% tariffs will not only hit Mexican products such as fruits, vegetables, meat, electronics and household appliances. Companies like Volkswagen and Stellantis have operations in Mexico which leaves them exposed. Several Japanese car manufacturers that rely on factories in Mexico to supply the U.S. and other markets will be affected too.


Unlike his first trade war crusade in 2016, where he bragged that tariff was beautiful and easy to win, this round, Trump acknowledged the potential impact of his tariffs – “Will there be some pain? Yes, maybe (and maybe not!). But we will Make America Great Again, and it will all be worth the price that must be paid.” However, the U.S. president has to make sure inflation does not spike.

U.S. inflation, at 2.9% in December 2024, is still higher than the Federal Reserve’s 2% target. The Peterson Institute estimated that U.S. inflation would be 0.54 percentage points higher this year, thanks to Trump’s tariffs. It didn’t help that the U.S. depends on Canada for most of its imported oil, which is refined into gasoline in the Midwest, not to mention avocados, tomatoes and cucumbers imported from Mexico.

Like it or not, inflationary pressures across the board is inevitable, ranging from immediate price increases such as groceries to pricier products over a longer period like cars. In 2018, Trump backed down after Mexico retaliated to U.S. tariffs on steel with tariffs of its own that included steel, pork, cheese, apples and bourbon. So, what’s the point of tariffs this time?


The 47th U.S. president has blamed Mexico, Canada and China as the root problem in fentanyl smuggling and illegal migration. But Trudeau argued that smuggling from Canada contributes less than 1% of the fentanyl street supply in the U.S., while Sheinbaum said it was “the White House’s slander” to accuse Mexico of causing the U.S.’s fentanyl problem.

Beijing, meanwhile, has rubbished Washington’s wild accusation, defending its efforts to control exports of precursor chemicals for fentanyl and said the drug crisis is “America’s problem.” For now, China is adopting a wait-and-see strategy over the 10% tariffs, a lower rate than Canada which frustrated PM Trudeau. Having fought Trump’s trade war during his first term, China is more prepared than both Canada and Mexico.

China’s decision to complain to the WTO about the new tariffs was to show that not only the Chinese Communist Party plays by global rules, but also to send a message that it prefers a negotiation than an immediate retaliation. The U.S. imported US$401 billion worth of goods from China, with a trade deficit of over US$270 billion in the first 11 months of last year (2024).


Crucially, the Chinese’s exports to the U.S. account for only 3% of their GDP and less than 15% of China’s total exports. Unlike Canada and Mexico, Beijing has long been preparing itself to be less exposed and less depended on the U.S. through diversification, not just in terms of trading partners, investment, but also currencies and payment system. More importantly, China has more powerful bargaining chips.

The unexpected announcement by Beijing that China will restrict exports of rare minerals widely used in semiconductors, military weapons and electric vehicles – Gallium, Germanium, Antimony and superhard materials – under the pretext of ”safeguarding national security and interests”, which obviously was taken from a page of the U.S. playbook, has caught the U.S. with its pants down.

Strategically, the world’s second biggest economy saw an opportunity to offer itself as a calm, stable and dependable alternative trading partner – unlike the unpredictable U.S. – to every nation, including Canada, Mexico and EU who are being targeted by Donald Trump. China also has a lot of leverage as the world’s biggest importer of fuel, soybean, meat, and semiconductors.


The Chinese have another lethal weapon – currency devaluation. Last month, the Renminbi or Yuan hit the key milestone of 7.3 to the US dollar, potentially signaling that Beijing is willing to let the currency devalue to boost exports. So, Trump’s 10% tariffs can be offset with Chinese Yuan’s artificial depreciation, which could wreck havoc to the U.S. and global economy by flooding cheap Chinese goods.

After four years of trade war with China during his first term, Donald Trump knew it is not easy to win the trade war after all, let alone to bring the world’s second biggest economy to its knees. The U.S. president also has great respect for strong leader like President Xi Jinping and Russian President Vladimir Putin, unlike Trudeau, whom was humiliated as “Governor Justin Trudeau of Canada”.

On the contrary, Trump can afford to bully, even troll and threaten, both Canada and Mexico as the smaller economies are likely to suffer more as a result of previous U.S.-China “Trade War 1.0”, which saw Mexico becoming the U.S.’s largest trade partner in 2023 and Canada was the second largest. The U.S. ran trade deficits with both countries – US$152 billion with Mexico and US$64 billion with Canada.


Now, with Trump’s 25% tariffs, Canada’s GDP could fall as much as 3%, while Mexico’s could suffer a 2% drop. This is why both key partners of Washington are upset and terrified of the trade war. Clearly, they need the U.S. more than the U.S. needs them, which the U.S. president can weaponise to make them to kowtow to his demands.