President Trump made one of the biggest gambling of his presidency on Tuesday by initiating radical rates without clear reasons for import from Canada, Mexico and China, which means that a trade war runs the risk of undermining the economy of the United States.
His actions have sent diplomatic relations with the largest trading partners in America, steered, markets tumbling and led to retribution on American products – companies, investors and economists were surprised why Mr Trump would create such a revolution without extensive negotiations or clear reasoning.
Mr. Trump has offered a variety of statements for the rates and said that they are punishable that the non -stopping of drugs and migrants to flow into the United States, a way to force production back to America and retribution for countries that benefit from the United States. On Tuesday he mentioned Canada's hostility towards American banks as a different reason.
Canadian Prime Minister Justin Trudeau said it was difficult to understand Mr Trump's reasoning for the rates, but stated that his intention was to paralyze Canada. “What he wants is to see is a total collapse of the Canadian economy, because it will make it easier to annex us,” said Mr. Trudeau during a press conference on Tuesday. “That will never happen. We will never be the 51st state. '
Canada announced a series of retribution rates for $ 30 billion in American import, and Mr. Trudeau said that other “non -Tariff” measures were published.
“Yes, he can damage the Canadian economy, but he will soon find out, as American families will soon discover, it will hurt people on both sides of the border,” said Mr. Trudeau.
Stock markets all over the world fell. In the United States, the financial sector was one of the worst affected, in addition to a large number of companies from cruise companies to large technology companies. The S&P 500 fell no less than 2 percent before they moderated losses in the afternoon. De Dip contributed to the loss of 1.8 percent of Monday, which was the sharpest decrease this year.
The bet that the Lord Trump seems to make is that America is so economically strong and crucial for international trade that he can use rates as a bat to solve almost every problem. But the mix of Mr Trump of Mercantilism and bullying tactics risks destabilizing an American economy that has been damaged by three years of inflation and is now confronted with delayed growth.
The president imposes steep import tax on the largest trading partners in America when inflation does not yet have to control completely, a decision that, according to many economists, will further increase the costs for American households and economic growth will be slow.
“The American people count on President Trump to lower costs and grow the American economy,” said Michael Hanson, senior executive vice president of public affairs at the Retail Industry Leaders Association. “Rates on Canada and Mexico brought those goals to the destabilization of the North -American economy in serious danger and risk.”
Anxious business groups held emergency meetings on Tuesday to determine their answers to the trade movements, which impose a rate of 25 percent on products from both Canada and Mexico, and to add another 10 percent rate to earlier levies on China. Some groups were considering taking legal steps to challenge the National Security Authority when the Trump administration is calling to perform the rates.
Others tried to struggle with what they would mean for their lower line. The objective of the retailer warned on Tuesday that rates could harm his efforts to recover from a heavy 2024, and said that consumers could return to the expenditure in the midst of broader uncertainty about the economy and that the company could increase prices for some products in this week. The Chief Executive of Best Buy, Corie Barry, said during a conference call that price increases were “very likely”, but that it was difficult to say how big they would be.
Kathy Bostjancic, chief economist at Nationwide, estimated that if the rates were maintained and retribution would continue to exist, economic growth would be a full percentage lower than would otherwise have been. That would suggest that the US economy would only grow 1 percent in 2025. In 2024 it grew 2.5 percent.
Mrs. Bostjancic also estimated that price increases would increase the expenditure of households on daily items by around $ 1,000 a year, on average, due to the rates.
Some companies and trade unions that would benefit from the rates that they praised. The United AutoWorkers Union said that they were “happy to see that an American president would take aggressive action when ending the free trade disaster that has fallen as a bomb in the working class.”
And Mr. Trump showed no signs of decline on Tuesday and said that companies could easily avoid the rates if they built their factories in the United States.
“If companies move to the United States, there are no rates !!!”, Mr Trump wrote about Truth Social on Tuesday.
Hours later Mr. Trump warned that if Canada took revenge at higher rates, the United States would increase his “reciprocal” rate by the same amount.
Mr. Trump's best economic assistants tried to explain the decision on Tuesday. Howard Lutnick, the commercial secretary, said on CNBC that the rates were 'not a trade war', instead called the conflict a 'drug war'.
If Canada and Mexico can prove the president that they can stop Fentanyl's flow, “the president can of course remove these rates,” said Mr. Lutnick. But he said that the United States had not seen “statistically relevant reduction of deaths in America”.
Official statistics show that the American deaths due to overdoses have fallen considerably during the 12 months ending in September, and the intersections on the border between the US and Mexico have plummeted.
Mr Lutnick said that the president would take other trade -related actions against Canada and Mexico in April. “Canada and Mexico had the invitation to act with a great economy, the United States of America, and they abused that invitation,” said Mr. Lutnick.
Everett Eissenstat, a partner at Squire Patton Boggs and a former economic adviser from Mr. Trump, said that the president seemed dissatisfied with the progress of other countries in combating drug trafficking, but said he might have other goals.
“I think it's about the fentanyl, but it's also about a wider photo,” he said.
Mr. Trudeau, together with President Claudia Sheinbaum of Mexico, implied that the administration created a false pretext for rates.
After he had checked a list of the recent successes of Mexico in combating drug trafficking, Mrs. Sheinbaum rejected what she called the “Fentanyl argument” that Mr. Trump was called to justify the imposition of the rates.
“For humanitarian reasons, we work together to prevent illegal drug trafficking in the United States,” she said in a statement. “As we have stated in many occasions, the government of that country must also take responsibility for the opioid crisis that caused so many deaths in the United States.”
Mr. Trudeau called Mr. Trump's reasons “completely fake, completely unjustified, completely untrue.”
One of the primary goals of Mr. Trump for rates is to force more domestic production. He also regards trade shortages as American 'subsidies' to other countries and is of the opinion that rates can help compensate for the costs of tax reductions and to pay the $ 36 trillion national debt.
Rates are likely to encourage some companies to open factories in the United States to be of serious service to American customers. But Canada, Mexico and China have also announced plans to take revenge on American exports, causing a wide strip of American sectors, including agriculture, retail and cars.
The economic impact of rates largely depends on how global trade shifts to explain the increased costs and how consumers adapt. With reference to the distraction of trade to Vietnam and Mexico during Mr Trump's trade war in his first government, economists of Pantheon Macro -economy predict that these rates will lead to a decrease in the share of US import to 13 percent, a decrease of 2 percentage points. They also expect that the US input from Canada will fall to 10 percent.
John C. Williams, president of the Federal Reserve Bank of New York, warned Tuesday that rates would probably lead to higher American prices, but that the size of the impact was very uncertain.
During an event organized by Bloomberg, he said he was starting to keep the impact of rates on inflation “because I think we will see some of those effects later this year.”
Mr. Williams emphasized that the FED also paid a lot of attention to how rates would influence economic activity, also if companies continue to invest or continue to spend consumers. “That is where I think another great uncertainty is.”
Mr. Trump is probably correct in his calculation that rates are harming US trading partners more than the United States. Because the United States is such a large country with different means, it is much less dependent on trade than many other advanced economies. The rates can also strengthen the US dollar, which is the reserve currency of the world, making imports cheaper and weaken part of the impact of the taxes.
Trade in goods and services accounts for around a quarter of US economic activity, compared to around 70 percent for Mexico and Canada, and 37 percent for China. Canada and Mexico both send about 80 percent of their exports to the United States, making them extremely dependent on the United States.
Foreign governments have already responded to the threat of Mr Trump's rates by working quietly on diversifying their trade relations in search of partners other than the United States. Mexico has updated its trade agreement with the European Union and made it into trade in trade discussions with Brazil. Europe reached a separate agreement with South American countries and with Switzerland.
Yet the negative effects of rates are probably inevitable, especially for Canada and Mexico. An analysis by the Peterson Institute for International Economics in February showed that a rate of 25 percent on all American imports from Canada and Mexico, coupled by similar rates from those countries, would shrink in the coming years, although the Canadian and Mexican economies would shrink more.
The rates took a rapid conviction of Democrats in the congress, while the Republicans pressed to defend them.
Senate majority leader John Thune, Republican of South Dakota, said that Mr Trump's rates' in this case 'were' oriented on specific objectives to reduce the amount of fentanyl in this country, across our borders. And so these rates, I think, hopefully are temporary. '
“Hopefully, if it is all said and done, it won't be something that will cause a lot of disruption,” he said.
Senator Ted Cruz, Republican of Texas, also said that he hoped that the rates would not continue for a longer period.
“Texas does an enormous amount of trade with both Mexico and Canada,” said Mr. Cruz. “So my hope is that these rates act as the stimulus that President Trump said they were designed.”
Colby SmithJoe Rennison and Catie Edmondson have contributed reporting.
