By Josh Boak, Paul Wiseman and Rob Gillies
The Associated Press
WASHINGTON (AP) — President Donald Trump launched a trade war March 4 against America’s three biggest trading partners, drawing immediate retaliation from Mexico, Canada and China and sending financial markets into a tailspin as the U.S. faced the threat of rekindled inflation and paralyzing uncertainty for business.
Just after midnight, Trump imposed 25 percent taxes, or tariffs, on Mexican and Canadian imports, though he limited the levy to 10 percent on Canadian energy. Trump also doubled the tariff he slapped last month on Chinese products to 20 percent.
Beijing retaliated with tariffs of up to 15 percent on a wide array of U.S. farm exports. It also expanded the number of U.S. companies subject to export controls and other restrictions by about two dozen.
Canadian Prime Minister Justin Trudeau said his country would plaster tariffs on more than $100 billion of American goods over the course of 21 days.
“Today the United States launched a trade war against Canada, their closest partner and ally, their closest friend. At the same, they are talking about working positively with Russia, appeasing Vladimir Putin, a lying, murderous dictator. Make that make sense,” Trudeau said.
Mexican President Claudia Sheinbaum said Mexico will respond to the new taxes with its own retaliatory tariffs. Sheinbaum said she will announce the products Mexico will tax on March 9. The delay might indicate that Mexico still hopes to de-escalate Trump’s trade war.
The president is abandoning the free trade policies the United States pursued for decades after World War II. He argues that open trade cost America millions of factory jobs and that tariffs are the path to national prosperity. He rejects the views of mainstream economists who contend that such protectionism is costly and inefficient.
Import taxes are “a very powerful weapon that politicians haven’t used because they were either dishonest, stupid or paid off in some other form,” Trump said March 4. “And now we’re using them.”
Dartmouth College economist Douglas Irwin, author of a 2017 history of U.S. tariff policy, has calculated that the March 4 hikes will lift America’s average tariff from 2.4 percent to 10.5 percent, the highest level since the 1940s. “We’re in a new era for sure.”
U.S. markets dropped sharply March 3 after Trump said there was “no room left” for negotiations that could lower the tariffs. Shares were mostly lower the next day after they took effect.
The Yale University Budget Lab estimates that Trump’s tariffs amount to a tax hike of $1.4 trillion to $1.5 trillion over 10 years and would disproportionately hit the poor.
Trump has said tariffs are intended to address drug trafficking and illegal immigration. But he’s also said the tariffs will come down only if the U.S. trade deficit narrows.
The American president has injected a disorienting volatility into the world economy, leaving it off balance as people wonder what he will do next.
During his first term, Trump imposed tariffs only after lengthy investigations — into the national security implications of relying on foreign steel, for example, said Michael House, co-chair of the international trade practice at the Perkins Coie law firm.
But by declaring a national emergency last month involving the flow of immigrants and illicit drugs across U.S. borders, “he can modify these tariffs with a stroke of the pen,” House said. “It’s chaotic.”
Democratic lawmakers were quick to criticize the tariffs.
“Donald Trump is not a king,” Rep. Gregory Meeks, top Democrat on the House Foreign Affairs Committee, said. “Presidents don’t get to invent emergencies to justify bad policies. Abusing emergency powers to wage an economic war on our closest allies isn’t leadership — it’s dangerous.”
Even some Republican senators raised alarms. “Maine and Canada’s economy are integrated,” said Sen. Susan Collins, R-Maine, explaining that much of the state’s lobsters and blueberries are processed in Canada and then sent back to the U.S.
Truck driver Carlos Ponce, 58, went about business as usual on March 4, transporting auto parts from Ciudad Juarez, Mexico, to El Paso, Texas, just as he’s done for decades.
Like many on the border, he was worried about the fallout from the tariffs. “Things could change drastically,” Ponce said. Truckers could lose their jobs or have to drive farther to coastal ports as Mexican manufacturers look for trading partners beyond the U.S.
Alan Russell, head of Tecma, which helps factories set up in places like Ciudad Juarez, is skeptical that Trump’s tariffs will bring manufacturing back to the United States.
“Nobody is going to move their factory until they have certainty,” Russell said. Just last week, he said, Tecma helped a North Carolina manufacturer that moved to Mexico because it couldn’t find enough workers in the United States.
U.S. businesses near the Canadian border scrambled to deal with the impact. Gutherie Lumber in suburban Detroit reached out March 4 to Canadian suppliers about the cost of 8-foot wood studs. About 15 percent of the lumber at Gutherie yard in Livonia, Michigan, comes from Canada.
Sales manager Mike Mahoney said Canadian suppliers are already raising prices. “They’re putting that 25 percent on studs.” Builders will strain to stay within their budgets.
Retaliation will likely pinch U.S. businesses.
After years of effort and thousands of dollars in investment, Tom Bard, a Kentucky craft bourbon distiller, gained a foothold in the Canadian provinces of British Columbia and Alberta and watched his sales grow north of the border. Now Kentucky bourbon is in Canada’s crosshairs, and an order from his Canadian distributors is on hold.
“That hurts,” he said. At his small distillery “every single pallet that goes out the door makes a huge difference … The last thing you want is to have an empty spot where your bottles are supposed to be on a shelf.”
Bard co-owns the Bard Distillery with his wife, Kim, in western Kentucky’s Muhlenberg County, about 135 miles (217 kilometers) southwest of Louisville, Kentucky.
Trump overwhelmingly carried Kentucky in the November election. In Muhlenberg County, Trump defeated Kamala Harris by a more than 3-to-1 margin.
The China tariffs threaten the U.S. toy industry. Greg Ahearn, president and CEO of the Toy Association, said the 20 percent tariffs on Chinese goods will be “crippling,” as nearly 80 percent of toys sold in the U.S. are made in China.
Steve Rad, CEO of the Austin, Texas-based toy maker Abacus Brands Inc., hopes to find ways to avoid raising prices in the wake of the 20 percent tax on Chinese goods. The company will have to “go to war” with its pricing and cost structure and figure out how to avoid penalizing consumers. For one product, a $39.99 kit that teaches children how volcanoes work, he’s thinking of switching to cheaper, lower-quality paper.
Rachel Lutz owns the Peacock Room, four women’s boutique shops with about 15 employees in Detroit. She’s been bracing for the tariffs but doesn’t understand the logic behind them.
“I’m struggling to see the wisdom in picking a fight with our largest trading partner that we’ve had historically wonderful relationships with,” Lutz said March 4 from her shop. “I’m struggling to really understand how they can’t see that will profoundly impact our economy in ways that I think the American consumer has not predicted. We’re about to find out.”
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Gillies reported from Toronto. Associated Press writers Anne D’Innocenzio in New York; Corey Williams in Detroit, Bruce Schreiner in Louisville, Kentucky; Didi Tang and Lisa Mascaro in Washington; and Megan Janetsky and Maria Verza in Mexico City contributed to this report.