United States President Donald Trump has confirmed his administration is set to enforce 25 per cent tariffs on goods from Mexico and Canada, stoking concerns of a North American trade war and sending local financial markets into a spin.
Mr Trump said during an address at the White House on Monday local time that there was "no room left" for a deal with either Canada or Mexico that would avert the tariffs by curbing fentanyl flows into the US.
"The tariffs, you know, they’re all set. They go into effect tomorrow," the president said.
"They're going to have to have a tariff. So, what they have to do is build their car plants — frankly — and other things in the United States, in which case they have no tariffs."
Those sent US financial stocks down sharply in late afternoon trading, and the Mexican peso and Canadian dollar both fell after his remarks.
Mr Trump also said reciprocal tariffs would take effect on April 2 on countries that impose duties on US products.
He also reaffirmed that he would increase tariffs on all Chinese imports to 20 per cent from the previous 10 per cent levy to punish Beijing for continued shipments of fentanyl to the US.
The tariffs are scheduled to take effect at 12:01am local Washington, DC time on Tuesday (3:01pm AEST), the Trump administration confirmed.
China announces retaliatory tariffs
China has retaliated against fresh US tariffs, announcing 10 to 15 per cent hikes to import levies on a range of American agricultural and food products.
The move has been announced just as an extra 10 per cent tariff on Chinese goods being imported into the US has come into force this afternoon.
Donald Trump's tariffs on Canada and Mexico have also begun.
Beijing will impose an additional 15 per cent tariff on US chicken, wheat, corn and cotton, the finance ministry announced in a statement.
And an extra 10 per cent levy will be implemented on US soybeans, sorghum, pork, beef, aquatic products, fruits and vegetables and dairy imports from March 10.
"The US's unilateral tariffs measures seriously violate World Trade Organization rules and undermine the basis for economic and trade cooperation between China and the US," China's commerce ministry said in a separate statement.
"China will firmly safeguard its legitimate rights and interests."
Why is Donald Trump imposing tariffs against Canada and Mexico?
The president has been pledging to implement tariffs against his country's closest neighbours since his election campaign, arguing the move would grow the US economy, protect jobs and raise tax revenue.
Since being sworn into office, Mr Trump has also placed particular focus on the importation of fentanyl across the US border and accused both Canada and Mexico of worsening the country's crippling addiction crisis.
Companies based in the US that import goods from abroad would be expected to pay the tariffs to the US government, and typically pass higher costs on to their customers in the form of higher prices.
When the president said he would impose tariffs on Canada, Mexico and China, concern grew among economists that it would lead to higher prices for groceries, electronics and various other household expenses, which could put pressure on the US inflation rate.
These tariffs come in addition to Mr Trump's plans to determine higher US reciprocal tariffs to match the tariff rates of other countries and offset their other trade barriers, a move that could hit countries like Australia and within the European Union.
How have Canada and Mexico responded?
Canadian Foreign Minister Melanie Joly has told reporters that Ottawa was ready to respond to Mr Trump's 25 per cent tariffs.
"There's a level of unpredictability and chaos that comes out of the Oval Office, and we will be dealing with it," she said.
“If Trump is imposing tariffs … We are ready with $155 billion worth of tariffs and we’re ready with the first tranche of tariffs, which is $30 billion.”
There has been more of a response from Mexican President Claudia Sheinbaum, who has assured her constituents that her government has a plan to handle the impact of the tariffs.
"We have a plan B, C, D," Ms Sheinbaum said, without giving any details. She also added that coordination with the US on trade and fentanyl trafficking had been "very good".
The announcement from the White House also comes a month after both Canada and Mexico struck deals to delay the implementation of tariffs by 30 days.
As part of that arrangement, Ms Sheinbaum said Mexico would immediately deploy 10,000 members of its National Guard to the US border to battle drug trafficking, especially fentanyl, while the US vowed to act to prevent trafficking of high-powered weapons south.
Mexico believes it has made a strong case to avoid the tariffs, with the number of migrants arriving at the US border at its lowest in years. The country also sent 29 drug cartel figures to the US last week.
Canada said last month it would introduce a $1.3 billion border plan that would include the appointment of a fentanyl czar, the listing of cartels and gangs as terrorist entities and the use of new helicopters, technology and personnel to stop the flow of fentanyl into the US.
Will Trump's tariffs start a trade war?
Shane Oliver, the chief economist at AMP, told the ABC it appeared North America was already entering a trade war that could progressively worsen if Mr Trump continued to impose tariffs on industries like the pharmaceuticals, steel or auto sectors.
"The reality is that that these tariffs have a lot further to go," he said.
"Once you allow for the steel and aluminium, which is scheduled to go in on March 12, you're pushing up to around 12 per cent average tariffs, which would be a four-fold increase, and then Trump is talking about doing more."
Harry Murphy Cruise, the head of China and Australia economics at Moody's Analytics, says that will most likely deliver a huge impact for ordinary Americans in the US.
"You look at where inflation hurts most, it's on those from lower socio-economic backgrounds — those who already have the least that feel the impact of inflation first," he told the ABC.
"That's because they spend more of their incomes on the necessities. Those are the things that will go up in price.
"More broadly, when you've got tariffs coming on, it is a massive impediment to global demand, so that has impacts beyond just North America and into the rest of the world as well."
How could the tariffs impact Australia and the world?
Mr Cruise has predicted that "Australia is going to be largely immune to any kind of tariffs that come", because the country has a trade deficit with the US — meaning it imports more American goods than it exports Australian goods to the US.
"If we do see any reciprocal tariffs come through, I'll suspect that they'll be relatively modest just because of those trading dynamics and our important security links [with the US]," he said.
"Where I think the big impact for Australia is going to be that broader global impact from tariffs and a slowdown in China. China is our major trading partner.
"[Tariffs] really are a handbrake on China's ability to export to the rest of the world, particularly to the US … That makes growth a lot harder for China."
Mr Oliver said that if there was any financial downturn in China because of Mr Trump's tariffs that impact the global economy, Australia would experience the blowback.
"If the global economy is weaker because of Trump's tariffs and other uncertainty caused by Trump, then that means less demand for our exports," he said.
"There'll still be an impact on the national psyche from one of our best friends — America — putting tariffs on our pharmaceutical products or steel products … That will be seen as taken badly by Australians.
"The broader threat to Australia is a much, much bigger threat because each time Trump puts up tariffs, it causes uncertainty, disrupts supply chains [and] causes these problems for the US economy."
ABC/wires
