Trump's 25% tariff takes effect: Canada, China hit back, Mexico has plan 'B, C, D'; how it could drive up prices

US President Donald Trump announced Monday that the United States will impose 25% tariffs on goods imported from Mexico and Canada starting Tuesday, pushing the region closer to a trade war and sending financial markets into turmoil.

The tariffs, which affect more than $900 billion in annual US imports from its two largest trading partners, triggered a selloff in global stocks and a sharp drop in bond yields. The Mexican peso and Canadian dollar also weakened following Trump’s remarks.

'Build in the US'

"They're going to have to have a tariff," Trump said at the White House. "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."

Trump framed the decision as a way to boost US manufacturing, particularly in the auto industry. "I would just say this to people in Canada or Mexico: if they’re going to build car plants, the people that are doing them are much better off building here, because we have the market," he said.

He dismissed any possibility of delaying the tariffs, saying there was "no room left" for negotiation to avert them by addressing the flow of fentanyl into the United States.

Retaliation from Canada and Mexico

The tariffs will take effect at 12:01 am EST on Tuesday, according to a notice in the Federal Register. US Customs and Border Protection will begin collecting the duties, including a 10% levy on Canadian energy imports.

Canadian Prime Minister Justin Trudeau announced retaliatory tariffs of 25% on C$155 billion ($107 billion) worth of US goods.

"Our tariffs will remain in place until the US trade action is withdrawn," Trudeau said Monday evening.

Canada will apply duties on C$30 billion of products immediately, with the remaining C$125 billion in tariffs kicking in after 21 days.

Mexico President Claudia Sheinbaum has vowed to respond, saying, "We have a plan B, C, D."

Ontario Premier Doug Ford called the tariffs and Canada’s retaliation "an absolute disaster" for both economies. He warned that Michigan auto plants could shut down within a week and threatened to halt nickel shipments and electricity exports to the US.

"I'm going after absolutely everything," Ford said.

China to face higher tariffs

Trump also reaffirmed plans to double tariffs on all Chinese imports to 20%, up from a previous 10%, citing Beijing's failure to curb fentanyl shipments to the US.

China's Commerce Ministry condemned the move, calling it "unreasonable and groundless" and vowed countermeasures.

"Such measures will not solve the US’ problems but instead will harm China-US economic and trade cooperation and disrupt regular international trade," China’s Commerce Ministry said.

Beijing later announced it will impose additional tariffs of up to 15% on imports of key US farm products, including chicken, pork, soy and beef. The tariffs will take effect from March 10.

US grown chicken, wheat, corn and cotton will face an extra 15% tariff, while 10% additional duties will be levied on sorghum, soybeans, pork, beef, seafoods, fruit, vegetables and dairy products, according to the Commerce Ministry.

Economic fallout looms

Last year, the US conducted nearly $2.2 trillion in trade with Canada, Mexico, and China.

The new tariffs, among the most aggressive since the 1930s, are expected to ripple across industries.

Auto manufacturing, which relies on supply chains spanning North America, will take a major hit. More than one in five cars and light trucks sold in the US are built in Canada or Mexico, according to Associated Press. The US imported $79 billion worth of vehicles from Mexico last year, along with $81 billion in auto parts. Experts warn that the tariffs could add about $3,000 to the cost of a new car.

Energy markets will also feel the impact as Canada supplies the US with $98 billion in crude oil annually. Industry analysts predict that US gasoline prices will rise, particularly in the Midwest, where refineries rely on Canadian crude.

Retailers and consumers will likely face higher prices on everyday goods. Cell phones, computers, toys, and clothing imported from China could see price hikes. The US imports more than $32 billion in toys and games from China annually and billions more in apparel and footwear.

Prices of Mexican avocados, Canadian whisky, and tequila are also expected to rise. Mexico supplies nearly 90% of the avocados sold in the US, and Canadian whisky imports were worth $537 million last year.