Trump's New Tariffs Threaten Global Trade, Price Stability

By Associated Press

Published 5 months ago on

February 1, 2025

President Trump's aggressive trade move against major partners sparks concerns over economic stability and inflation. (AP/Evan Vucci)

Trump's new tariffs on Canada, Mexico, and China could lead to higher inflation and global economic disruption.
The president is betting that his actions won't worsen inflation or provoke voter backlash in his second term.
Canadian and Mexican leaders prepare responses, while Democrats push for congressional approval on tariffs.

PALM BEACH, Fla. — New trade penalties against Canada, Mexico and China that President Donald Trump plans to impose Saturday represent an aggressive early move against America’s three largest trading partners, but at the risk of higher inflation and possible disruptions to the global economy.

In Trump’s view, the 25% tariffs against the two North American allies and a 10% tax on imports from Washington’s chief economic rival are a way for the United States to throw around its financial heft to reshape the world.

“You see the power of the tariff,” Trump told reporters Friday. “Nobody can compete with us because we have by far the biggest piggy bank.”

The Republican president is making a major political bet that his actions will not worsen inflation, cause financial aftershocks that could destabilize the worldwide economy or provoke a voter backlash. AP VoteCast, an extensive survey of the electorate in last year’s election, found that the U.S. was split on support for tariffs.

It is possible that the tariffs could be short-lived if Canada and Mexico can reach a deal with Trump to more aggressively address illegal immigration and fentanyl smuggling. Trump’s move against China is also tied to fentanyl and comes on top of existing import taxes.

Honoring Campaign Promises

Trump is honoring promises he made in the 2024 White House campaign that are at the core of his economic and national security philosophy, though Trump allies had played down the threat of higher import taxes as mere negotiating tactics.

The president is preparing more import taxes in a sign that tariffs will be an ongoing part of his second term. On Friday, he mentioned imported computer chips, steel, oil and natural gas, as well as against copper, pharmaceutical drugs and imports from the European Union — moves that could essentially pit the U.S. against much of the global economy.

Trump’s intentions drew a swift response from financial markets, with the S&P 500 stock index slumping after his announcement Friday.

Potential Economic Impact

It is unclear how the tariffs could affect the business investments that Trump said would happen because of his plans to cut corporate tax rates and remove regulations. Tariffs tend to raise prices for consumers and businesses by making it more expensive to bring in foreign goods.

Many voters turned to Trump in the November election on the belief that he could better handle the inflation that spiked under Democratic President Joe Biden. But inflation expectations are creeping upward in the University of Michigan’s index of consumer sentiment as respondents expect prices to rise by 3.3%. That would be higher than the actual 2.9% annual inflation rate in December’s consumer price index.

Trump’s Tariff Philosophy

Trump has said that the government should raise more of its revenues from tariffs, as it did before the income tax became part of the Constitution in 1913. He claims, despite economic evidence to the contrary, that the U.S. was at its wealthiest in the 1890s under President William McKinley.

“We were the richest country in the world,” Trump said Friday. “We were a tariff country.”

Trump, who has aspired to remake America by using McKinley’s model, is conducting a real-time experiment that the economists who warn tariffs lead to higher prices are wrong. While the tariffs in his first term did not meaningfully increase overall inflation, he is now looking at tariffs on a much grander scale that could push up prices if they’re enduring policies.

International Reactions

Canadian Prime Minister Justin Trudeau told Canadians that they could be facing difficult times ahead, but that Ottawa was prepared to respond with retaliatory tariffs if needed and that the U.S. penalties would be self-sabotaging.

Trudeau said Canada is addressing Trump’s calls on border security by implementing a CDN$1.3 billion (US$90 million) border plan that includes helicopters, new canine teams and imaging tools.

Mexico President Claudia Sheinbaum has stressed that her country has acted to reduce illegal border crossings and the illicit trade in fentanyl. While she has emphasized the ongoing dialogue since Trump first floated the tariffs in November, she has said that Mexico is ready to respond, too.

Mexico has a “Plan A, Plan B, Plan C for what the United States government decides,” she said.

Trump still has to get a budget, tax cuts and increase to the government’s legal borrowing authority through Congress. The outcome of his tariff plans could strengthen his hand or weaken it.

Democrats are sponsoring legislation that would strip the president of his ability to impose tariffs without congressional approval. But that is unlikely to make headway in a Republican-controlled House and Senate.

“If this weekend’s tariffs go into effect, they’ll do catastrophic damage to our relationships with our allies and raise costs for working families by hundreds of dollars a year,” said Sen. Chris Coons, D-Del. “Congress needs to stop this from happening again.”