President Trump launched a trade war on Tuesday, imposing major tariffs on the top three US trade partners, Canada, Mexico and China.
He imposed a 25% import tax on Canada and Mexico, increasing Chinese tariffs to 10-20%.
Tariffs affect imports of more than $1 trillion. Canada, Mexico and China exported a total of $1.4 trillion in goods to the United States in 2022, worth more than 5% of gross domestic product (GDP) that year.
Trump has announced multiple tariffs that he has since turned or suspended, but Tuesday's tariffs mark the biggest escalation to date in a substantial overhaul of the US trade policy Trump has pledged during his campaign.
Here's how policy change will affect Americans:
Short-term market turmoil
Stock markets fell off the cliff on Monday following President Trump's remarks that Canada and Mexico “doesn't have rooms left” to negotiate tariffs on Monday.
The inventory loss continued Tuesday morning, with the Dow Jones industrial average for big US companies falling more than 685 points on a day, a loss of 1.6%.
The S&P 500 index was closed at a loss of 1.3%, while the technology-rich NASDAQ composite fell by 0.4%.
Investment bank Goldman Sachs estimates that 25% tariffs in Canada and Mexico and incremental tariffs in China will reduce S&P's revenue forecasts by 2-3%.
Products can be more expensive
Many businesses and market forecasters have warned that Trump's import tax could lead to rising consumer prices.
“Tax disruptions risk exacerbating inflation, increasing the costs of essential products, and putting a financial burden on businesses and consumers alike,” the National Association of Wholesale Distributors, a trade group, warned in a statement Tuesday.
Tariffs do not translate directly into price increases, and businesses can respond to them in a variety of ways, such as simply eating an increase in costs. Trump's 2018 tariffs did not cause a major surge in inflation, the way the 2020 coronavirus pandemic did.
However, disruptions caused by companies changing their supply chains on a highly integrated North American production pipeline could lead to rising consumer prices. One estimate from Anderson Economic Group found that the cost per vehicle for certain vehicles produced in North America could increase by $12,000 at the high end.
Import taxes can cause economic performance in the US
Some economic models show tariffs are bitten from GDP.
Actual GDP growth was 0.6 points lower in 2025 and 0.1 points lower in 2026, as a result of tariffs. Yale Budget Lab.
The group found that tariffs are felt more keen by Americans at the bottom of the income spectrum.
“The percentage of disposable income changes due to tariffs is almost three times that of households in the second decades due to income for top-dikyle households,” the Yale predictor wrote.
The economy has been working well in recent quarters, but a slowdown could be on the horizon as consumers are pulling back spend amid concerns about rising inflation.
The Atlanta federal government forecasts a contraction in the US economy in the first quarter of this year.
The influential Teamster Labour Union said tariffs are worth less than the economy if they help to strengthen the domestic industry.
“We support solutions that bring work back to America,” a group spokesman said in a statement to the hill.
Political and cultural blowbacks
Trump campaigned by lowering American costs, riding the wave of anger over inflation all the way to the White House. Cost of living was one of the biggest issues for voters in the 2024 election.
Higher prices due to Trump's tariffs could potentially reduce US economic performance and undermine Trump's appeal to the economy.
Some Republicans are aware of the impact of tariffs on potential prices. Senator Mark Wayne Marin (R-Okla). I told the reporter On Tuesday, he was “of course” worried about the impact of tariffs on his state.
Meanwhile, Democrats are jumping at the potential economic vulnerabilities posed by the new tariffs.
“It only took the president 43 days to wreak havoc on our economy and our Americans,” Democratic tax writer Richard Neal, Massachusetts, said in a statement Tuesday. “The outlook for economic growth has plummeted to negative, consumer sentiment is plunged, and coastal small businesses and farmers are afraid to come to his trade war from the coast.”
Tariffs could also deprive the cultural ties between the US and its North American neighbours. Following the initial announcement of tariffs in Canada and Mexico, Canadian Prime Minister Justin Trudeau has told Canadians not to take leave in the US
This week's Yougov Polling found that 50% of Canadians now view the United States as either “friendly” or “enemy,” while only 6% of Americans feel the same about Canada.
Will the tariffs last?
Trump delayed and reversed several customs orders while in office, and the same could happen again.
After implementing tariffs on Chinese shipments under $800, Trump pulled out the order two days later when packages began to be stacked at US ports of entry.
Businesses want similar aspects of Tuesday's tariffs.
“We will rethink this policy and promptly end these tariffs,” Neil Bradley, chief policy officer of the U.S. Chamber of Commerce, a top business lobby, said in a statement Monday.
Mexican President Claudia Sinbaum, who previously called Trump's tariff threats a negotiating bluff, said Mexico will respond on Sunday with retaliatory measures.
“We have decided to respond with both tariff and non-tariff measures announced in the public square on Sunday,” she said.
Updated at 4pm on EST.
