Trump Tariffs Spark Trade War: The Manufacturing Impact
In alignment with the Trump Administration's latest slogan 'Promises made, promises kept', the US President has brought his controversial tariffs into effect on 1 February 2025.
Moving forward Mexican and Canadian goods will be subject to a 25% tariff, while Chinese imports and Canadian energy will face a lower tariff at 10%.
According to White House officials, these tariffs come with no exceptions and would even apply to Canadian imports at values less than US$800, which are currently duty-free.
President Trump invoked the International Emergency Economic Powers Act (IEEPA) to impose the tariffs, accusing the targeted countries of not doing enough to stop illegal immigration and drug trafficking into the United States.
These changes will officially come into effect on 5 February and the impacted nations are not sitting around simply waiting for them to happen.
Mexico, Canada and China have all taken various degrees of retaliatory action, sparking a trade war.
A war which could escalate, with President Donald Trump's recent comments that he will "absolutely" impose tariffs on the EU.
Here are the responses we've seen, and how they are reshaping the future of manufacturing and trade.
Mexico
Mexican President Claudia Sheinbaum has ordered retaliatory tariffs on the US.
In a lengthy post on X, Sheinbaum stated that her government sought dialogue rather than confrontation with its primary trade partner to the north, but that Mexico had been compelled to respond in kind.
She also dismissed as “slander” the White House’s claim that drug cartels have an alliance with the Mexican government, a point the Trump administration used to justify the tariffs.
“I’ve instructed my economy minister to implement the plan B we’ve been working on, which includes tariff and non-tariff measures in defence of Mexico’s interests,” Sheinbaum said, without detailing which specific US goods her government would target.
The US remains by far Mexico’s most significant foreign market, and in 2023, Mexico surpassed China as the leading destination for US exports.
The retaliatory tariffs on US imports could ranging from 5% to 20% and target products such as pork, cheese, fresh produce, manufactured steel, and aluminium, according to inside sources.
These sources also indicate the auto industry would initially be exempt.
US exports to Mexico totalled more than US$322bn in 2023, according to Census Bureau data, while the US imported more than US$475bn worth of Mexican products.
These tariffs will be detrimental for manufacturers across Mexico, having a prominent impact on those in the automotive, energy and agricultural sectors.
In automotive and energy in particular, Mexican manufacturers are heavily reliant on the US market, meaning a trade war could lead to factory closures, job losses and a recession.
Within agriculture there is more room for manoeuvring. Mexico is the most important market for US food and agricultural exports, ahead of both Canada and China.
Mexican farmers supply a staggering 63% of US vegetable imports and 47% of its fruit and nut imports, meaning with the tariffs in place products (like avocados) which have skyrocketed in demand in the US will grow extremely expensive.
This is in addition to the US agricultural sector's current labour crisis due to President Trump's executive orders on immigration.
The National Agricultural Workers Survey (NAWS) estimates that 68% of US farmworkers are foreign-born, with about 44% being undocumented. With President Trump's orders for ICE to round up undocumented immigrants to deport them to their countries of birth, many of these workers have been staying home, leaving the agricultural industry at a standstill.
Prices on everyday produce like tomatoes, fruit and eggs is currently skyrocketing.
With a lack of homegrown produce, the US will grow more reliant on imports, increasing the bargaining power of Mexican manufacturers.
Canada
President Trump has repeatedly signalled he'd like to see Canada become the “51st state”, reinstating this wish in January at the World Economic Forum in Davos, Switzerland.
"We have a tremendous deficit with Canada. We’re not going to have that any more. We can’t do it,” the President said.
"As you probably know, I say: ‘You can always become a state. And then, if you are a state, we won’t have a deficit. We won’t have to tariff you."
This offer seemingly wasn't enough to convert Canada to the 51st, as Prime Minister Justin Trudeau has responded to Trump's tariffs in kind.
Canada will place 25% tariffs on up to US$155bn in US imports, targeting American beer, wine and bourbon.
Goods like sports equipment, household appliances and clothing will also be subject to tariffs.
The tariffs will also cover fruits and fruit juices, including orange juice from Trump’s home state of Florida according to Trudeau.
In November 2024, Canada was the third largest buyer of US goods, accounting for 12.2% of total US imports. In 2023, an estimated US$2.7bn worth of goods and services crossed the US-Canada border each day.
Today Canada is the largest export market for US goods, meaning these tariffs will have a notable impact on the nation's manufacturers.
Canadian manufacturers will also be navigating the challenges of the tariffs.
Exports to the U.S. accounts for roughly 17.8% of Canadian gross domestic product and more than 2.4 million jobs in Canada.
“The actions taken today by the White House split us apart instead of bringing us together,” Trudeau commented, addressing US citizens during a press conference in Ottawa.
“We didn’t ask for this, but we will not back down.
"Tariffs against Canada will put your jobs at risk, potentially shutting down American auto assembly plants and other manufacturing facilities.
"They will raise costs for you, including food at the grocery store and gas at the pump."
Canada is also considering further non-tariff measures relating to critical minerals and energy procurement.
The idea of cutting off energy supply to the US is being discussed, something which could have a dramatic impact on the nation.
Canada is the largest energy trading partner of the United States, supplying about 60% of the US's crude oil imports, 99% of its natural gas imports and 90% of its electricity imports.
If the nation was to cut supply to the US, manufacturers and consumers will experience significantly higher energy costs as the nation is forced to turn to more expensive sources.
To balance costs, manufacturers may again be forced to evaluate operations and their wider labour force.
China
China’s government has condemned the tariffs and Trump’s demand that Beijing take action to stem the flow of fentanyl, a deadly opioid, into the US.
However the nation has also left the door open for talks with the US that could prevent further escalation of the conflict.
Beijing will challenge Trump’s tariff at the World Trade Organization (WTO) – a symbolic move – and implement unspecified “countermeasures” in response to the tariffs according to China’s Finance and Commerce Ministries.
However, this response stopped short of the immediate escalation seen during China’s trade conflict with Trump in his first term as president, reflecting the more measured tone Beijing has adopted in recent weeks.
China’s Commerce Ministry stated that Trump’s actions “seriously violate” international trade rules, urging the US to “engage in frank dialogue and strengthen cooperation.”
By filing a lawsuit with the WTO, Beijing could gain a diplomatic win by defending the rules-based trading system that has been championed by US administrations across both political parties.
China has taken a similar step in challenging tariffs of up to 45% on Chinese-made electric vehicles imposed by the European Union.
At the same time, the WTO appeal poses no immediate threat or cost to Washington.
China’s strongest response centred on fentanyl, an issue on which the administration of former US President Joe Biden had also urged Beijing to act against shipments of the precursor chemicals from China that are used to make the drug.
“Fentanyl is America’s problem,” commented China’s Foreign Ministry. “The Chinese side has carried out extensive anti-narcotics cooperation with the United States and achieved remarkable results."
The measured tone may also reflect the greater preparation of Chinese industry in the face of the tariffs.
Having experienced Trump's 2016 tariffs many manufacturers have adopted coping strategies like looking to alternative non-US suppliers and nations as manufacturing bases.
For many the decision comes down to either passing on higher costs to US consumers, moving manufacturing to different countries or even leaving the US market all together.
The wider impact
Trump is the first President to ever use the IEEPA to impose tariffs, and the first since Nixon to impose them at all.
In a political move famously known as the 'Nixon Shock', former US President Richard Nixon set an import surcharge of 10%.
This was to ensure American products wouldn't be at an disadvantage post-Korean war due to fluctuating exchange rates.
US tariffs were a shock then and they continue in that tradition now, with the ultimate cost falling at the feet of consumers and manufacturers.
Jay Timmons, CEO of the National Association of Manufacturers has come out to say that the tariffs will cost US manufacturers US$144bn annually.
According to the Budget Lab at Yale, the average US household is set to lose US$1,170 in income from the tariffs.
As the US manufacturing industry continues to decline, these tariffs are likely to render it more insular and less competitive on the global stage.
A perception is growing that the US market is highly unpredictable, and this unpredictability is not attractive for many manufacturers.
While those in Mexico, Canada and China battle higher costs, they also have strategic means at their disposal to retaliate and strengthen economic and trade ties with other non-US nations.
Already governments are looking to China- the current biggest global manufacturing superpower- to forge new alliances, reshaping the world's geopolitical and manufacturing future.
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