Trump admits tariffs will cause ‘little disturbance’ in US economy

New tariffs imposed on Mexico, Canada, and China will bring a “little disturbance” to the U.S. economy, President Donald Trump recognized. “But we’re okay with that; it won’t be much,” he added.

Trump’s address to a joint session of Congress on Tuesday came after he pushed forth with tariff hikes on the three countries over illegal immigration and drug trafficking.

This drew a sharp rebuke from Canadian Prime Minister Justin Trudeau and retaliatory levies. China responded to this with countermeasures, while Mexican President Claudia Sheinbaum similarly promised to push back.

Earlier Tuesday, a furious Trudeau accused Trump of trying to cause the collapse of Canada’s economy to make it easier for the United States to annex his country and blasted Washington for targeting a close ally while “appeasing” Russia over Ukraine.

Fears that the tariff spat is devolving into a brutal trade war sent global markets lower, with major Wall Street indexes tumbling.

Trump’s 25% duties on Mexican and Canadian imports affect everything from avocados to the lumber crucial for building U.S. homes, snarling supply chains for key sectors like automobiles. Canadian energy resources face a lower rate.

Multiple Canadian provinces have since banned the sale of U.S. alcohol products as part of a broad national retaliation.

Trump also inked an order Monday to increase a previously imposed 10% tariff on China to 20%─piling atop existing levies on various Chinese goods.

Beijing condemned Washington’s “unilateral imposition of tariffs,” filing a complaint with the World Trade Organization and unveiling 10-15% levies on a range of agricultural imports from the United States.

‘Somewhere in the middle’ of Canada, Mexico

Commerce Secretary Howard Lutnick, however, said Tuesday that Trump could dial down hefty levies on Canada and Mexico this week while maintaining pressure on China.

“I think he’s going to work something out with them,” Lutnick told Fox Business, adding the announcement would probably come on Wednesday. “Somewhere in the middle will likely be the outcome, the president moving with the Canadians and Mexicans, but not all the way,” he said.

On Tuesday, Trump also aimed in his speech at the European Union and countries including Brazil, India, and South Korea over what he called “unfair” practices. He said reciprocal tariffs tailored to U.S. trading partners would “kick in” on April 2.

Analysts and businesses have warned that higher import costs could raise prices for consumers and this may complicate efforts to bring down inflation—one of the issues that got Trump elected.

Mexico supplied 63% of U.S. vegetable imports and nearly half of fruit and nut imports in 2023, according to the U.S. Department of Agriculture.

Brian Cornell, chief executive of U.S. retail giant Target, said Tuesday the company could be forced to raise the cost of some fruits and vegetables over the coming days.

“The short-term effect of any tariff is inflation,” Charles van der Steene, the North American president for shipping giant Maersk, told CNBC. “It’s inflationary in its essence.”

Housing costs could also be hit. More than 70% of imports of two key building materials—softwood lumber and gypsum—come from Canada and Mexico, according to the National Association of Home Builders.

Fight to ‘bitter end’

Ottawa’s retaliatory 25% tariffs on CAN$30 billion ($20.8 billion) of goods took effect early Tuesday. Trudeau said tariffs on an additional CAN$125 billion of U.S. goods will come into force in 21 days.

Addressing the U.S. president, Trudeau said that while he thinks Trump is a “smart guy,” the tariffs are a “very dumb thing to do.”

China said its tariffs against the United States will come into effect next week and will impact tens of billions of dollars in imports, from soybeans to chicken.

Beijing also announced that imports of U.S. lumber have been suspended and that soybean shipments from three American exporters have been halted. China’s foreign ministry vowed to fight the U.S. trade war to the “bitter end.”