Trump threatens 25% tariffs on Mexico and Canada on February 1, lifting day 1

CNN
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President Donald Trump said at an Oval Office signing ceremony Monday night that his administration will impose 25% tariffs on Mexico and Canada on Feb. 1, an extraordinary change in North American trade policy that could raise prices for American consumers.

Trump still outlined his broader trade policy for his second term in an executive action Monday. But that action — described by sources as a “placeholder” — does not impose new global tariffs, as Trump promised on day one.

As a candidate, Trump proposed sweeping and cross-cutting tariffs: up to 20% on imports from all countries, with a 25% tax on goods from Mexico and Canada, plus a punitive 60% tax on goods from China. He also promised to use tariffs as a negotiating tool with other countries, including, for example, Denmark – and to put pressure on the European nation to give control of Greenland to the United States.

Asked Monday at an Oval Office signing ceremony about tariffs on China, Trump noted that sweeping tariffs he imposed during his first administration were still in place after former President Joe Biden largely left them in place. And on universal tariffs, Trump shot back, saying, “We can, but we’re not ready for that yet.”

The executive action signed on Monday directed the Secretary of Commerce and Treasury and the US Trade Representative to investigate the causes of US trade deficits with foreign nations to determine how to build an “External Revenue Service” to collect tariffs, to identify unfair trade practices and to review existing trade agreements for potential improvements.

It also tasks government officials with analyzing how the US-Mexico Trade Agreement (USMCA), which Trump signed during his first term, affects American workers and businesses — and whether America should remain in the free trade agreement. Trump’s action requires agencies to assess whether stricter U.S. trade policy can successfully curb the flow of fentanyl and the flow of undocumented migrants into the United States.

“Americans benefit from and deserve an America First trade policy,” Trump’s executive action said. “That’s why I’m establishing a robust and renewed trade policy that promotes investment and productivity, enhances our nation’s industrial and technological advantages, defends our economic and national security, and — above all — benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses .”

Potentially waiving parts of the USMCA carries its own set of risks, Judge Glock, director of research and a senior fellow at the Manhattan Institute, a conservative-leaning think tank, told CNN. “Other countries will be more reluctant to negotiate such agreements in the future if they know that the agreements cannot ensure consistent trade relations.”

Clark Packard, a researcher at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, said the 25% tariffs “would be a very serious mistake” and would also “violate” USMCA terms.

The placeholder action comes as Trump’s economic team has been meeting regularly to chart a path to implementing the steep, sweeping tariffs on both allies and adversaries that the president promised on the campaign trail.

Although administration officials continue to debate how to follow through on his promises, Trump made it clear in his inaugural address that he still plans to make significant changes to tariff policy — in one form or another.

“I will immediately begin the overhaul of our trading system to protect American workers and families,” Trump said in his speech in the US Capitol Rotunda on Monday. “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”

Trump also said in his speech that he would establish a new government office called the “External Revenue Service” tasked with collecting customs revenue.

“It will be enormous amounts of money flowing into our treasury coming from foreign sources,” Trump said.

But how to do that remains an active issue that has divided Trump’s economic team. Among some proposed alternative ideas: smaller tariffs that grow in volume over time, or tariffs that don’t go into effect for months, giving the administration time to bring counterparts to the bargaining table.

Also under discussion: what legal basis should be used to back up the tariffs, especially with countries and companies affected by those likely to sue. Advisers weigh in on emergency powers, which would give the president broad authority to regulate imports.

Market-minded officials such as Scott Bessent, Trump’s pick for Treasury secretary, and Kevin Hassett, his pick to lead the National Economic Council, have advocated for a softer approach. Tariff advocates such as Peter Navarro, White House trade adviser, and Howard Lutnick, Trump’s pick to lead the Commerce Department, have argued that the full drilling is necessary to send the message Trump wants.

Trump, for his part, has called on allies on Capitol Hill to back support for the tariffs. But the concrete policy has not yet been decided.

But those tariffs could increase costs for Americans tired of years of high inflation. Tariffs are paid by American companies that import foreign goods, but these costs are typically passed on to consumers in the form of higher prices.

Despite assurances from Trump that foreign countries will pay the tariffs — not American consumers, new research from the Peterson Institute for International Economics suggests the opposite: Trump’s aggressive tariff campaign will force American consumers to pay more for virtually everything — from foreign-made sneakers and toys for food.

Mexico and Canada are two of the US’s three largest trading partners. Last year, the United States imported $475 billion worth of goods from Mexico and $418 billion from Canada, which together accounted for 30% of the value of all the goods the United States imported last year, according to federal trade data.

Meanwhile, the U.S. exported $354 billion worth of goods to Canada last year and $322 billion to Mexico, accounting for a third of the value of all goods exported by the U.S. worldwide last year. The tariffs Trump intends to impose on both countries are likely to raise the prospect of the two imposing retaliatory tariffs on American goods, potentially hurting domestic businesses.

The tariffs, if enacted, “would create a self-inflicted wound on America’s own economy,” Glock said.

Trump’s tariffs will raise prices especially on imported electrical appliances, toys and sporting goods, Peterson found. And companies will face new taxes to import transportation equipment, chemicals and other items.

Supporters of Trump’s tariff plan argue that the tariffs will be used strategically to advance US interests in the world and save American consumers in the long run. In his first term, Trump threatened tariffs several times, only to back off his threats when foreign countries came to the negotiating table.

But most mainstream economists fear that Trump’s tariffs could reignite America’s inflation crisis, spook the stock market and trigger a full-blown trade war. US tariffs often invite retaliation from other countries. During Trump’s first term in office, everything from American cars and soybeans to whiskey were hit with retaliatory tariffs.

The ideological debate taking place among Trump’s economic team is reminiscent of his first term, when Steven Mnuchin and Gary Cohn — Wall Street alums who served atop the Treasury and National Economic Council, respectively — led a vociferous charge to halt or water down the tariffs Trump proposed. , afraid of retaliation and recession.

At the time, discussions continued for more than a year before the administration announced its intentions to impose tariffs as part of a national security investigation.

Despite numerous reports that Trump might lower his tariff policy this term, he has consistently maintained that he will fulfill his campaign promises. Both may ultimately be true: the devil will be in the details.

This headline and story has been updated with further developments.