President-elect Donald Trump has announced plans to impose a 25% tariff on imports from Mexico and Canada over immigration and drug trafficking issues, and an additional 10% tariff on Chinese goods due to the fentanyl crisis.

Donald Trump has announced that, should he be re-elected as president, he will sign an executive order imposing a 25% tariff on all products entering the United States from Mexico and Canada. Additionally, he plans to implement further tariffs on China. Trump shared this plan in a post on Truth Social, stating that one of his first executive actions would be to enact these tariffs, which would remain in place until both Mexico and Canada take stronger action against illegal immigration and the flow of drugs, particularly fentanyl, into the US.

In a subsequent post, Trump clarified that China would face an additional 10% tariff on all products coming into the US, beyond any existing tariffs. This move is in response to China’s failure to curb the flow of drugs, especially fentanyl, which is primarily produced using precursor chemicals from China and trafficked through Mexican cartels into the US. Trump emphasized that despite numerous discussions with China regarding this issue, no significant progress had been made, and until China acts, the additional tariff would remain in place.

China responded by cautioning that a trade war would be detrimental to all parties involved. Liu Pengyu, a spokesperson for the Chinese embassy, defended China’s actions, stating that the country has made significant efforts to combat drug trafficking, including a 2023 agreement between President Joe Biden and President Xi Jinping. He insisted that the notion of China knowingly allowing fentanyl precursors to enter the US is unfounded.

Canada’s Deputy Prime Minister Chrystia Freeland also weighed in, asserting that Canada prioritizes border security and the integrity of its shared border with the US. She did not directly address the proposed tariffs, but noted that Canadian and US authorities, including the Canada Border Services Agency, the US Drug Enforcement Administration, and US Customs and Border Protection, work collaboratively every day to tackle the fentanyl issue.

Bill Ackman, CEO of Pershing Square Capital Management, expressed support for Trump’s approach, stating that using tariffs as a strategic tool could benefit America by securing better political and economic outcomes. In financial markets, the dollar rose to its highest level against China’s yuan since July, and also gained nearly 2% against the Mexican peso, hitting a four-and-a-half-year high against the Canadian dollar. Asian stock markets saw declines, as did European shares early in the trading day.

Despite concerns over the potential impact of these tariffs, the mood among German exporters showed slight improvement. According to the Ifo economic institute, export expectations rose slightly in November, suggesting some companies are waiting to see what trade policies Trump will ultimately enact. Klaus Wohlrabe, head of Ifo surveys, noted that while companies were unsettled, the strong appreciation of the dollar since the election could benefit exporters.

During his campaign, Trump described tariffs as “the most beautiful word in the dictionary,” emphasizing his intention to reduce US reliance on foreign goods by making imports more expensive. He campaigned on promises to raise tariffs to 60% on Chinese imports and 20% on those from other countries, arguing that this would strengthen the US’s international trade position and create more jobs at home.

Economists typically view tariffs as an inefficient tool, as they tend to raise the price of goods for consumers and taxpayers. In addition to increasing consumer costs, tariffs often provoke retaliatory measures from other countries, which can escalate into trade wars, as seen during Trump’s first presidency with China. Robert Reich, former US Secretary of Labor, criticized tariffs, explaining that they raise prices for everyone, especially lower-income workers.

According to the Peterson Institute for International Economics, Trump’s proposed tariffs could cost the average US household more than $2,600 annually. This proposal comes shortly after Trump’s appointment of Scott Bessent as Treasury Secretary, a move that many on Wall Street viewed as a signal that Trump might moderate his approach to tariffs. However, some analysts believe that the 10% tariff on China is likely a negotiating tactic, given China’s current economic vulnerabilities, including a prolonged property downturn and weak domestic demand.

William Reinsch, a senior adviser at the Center for Strategic and International Studies, described this move as typical of Trump’s approach: "threaten, and then negotiate."

Tahra Jirari, Director of Economic Analysis at the US trade group Chamber of Progress, pointed out that these tariffs would lead to higher prices for consumers. She warned that the proposed 25% tariff on imports from Mexico and Canada would drive up costs for everyday goods, including cars, food, and electronics, and noted that companies would struggle to absorb such a steep increase.

The proposed tariffs may also signal Trump’s intentions regarding the US-Mexico-Canada Agreement (USMCA), which he renegotiated during his first term. Alex Loo, a foreign exchange and macro strategist at TD Securities, suggested that Trump might be aiming to accelerate the renewal of the agreement with Canada and Mexico, even though it is not up for renegotiation until 2026.

Mexico and Canada remain highly dependent on the US market, with over 83% of Mexico’s exports going to the US and 75% of Canada’s exports destined for the US. Wendy Cutler, a former US trade official, pointed out that both countries’ ability to resist Trump’s tariff threats is limited due to their reliance on the US market.