Trump says he will slap 25% tariffs on Mexico and Canada — sparking a US dollar rally

• President-elect Donald Trump announced sweeping tariffs on imports from Canada, Mexico, and China.
• He said he planned to impose a 25% tariff on goods from Canada and Mexico.
• He also said he intended to impose an additional 10% tariff on Chinese goods.

President-elect Donald Trump's announcement of a slate of tariffs sparked a rally in the US dollar on Monday.

The US Dollar Index surged by over 1% following the announcement, while the Mexican peso and Canadian dollar weakened sharply amid tariff concerns.

In a pair of Truth Social posts on Monday, Trump said he planned to kick off his term on January 20 with executive orders "to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders."

"This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!" Trump wrote on Truth Social.

The threat of tariffs since Trump was elected has led to a rally in the US currency on the expectation that the Federal Reserve will have to keep rates higher to counter the inflationary effect of the tax on imports. Higher US rates, in turn, lead to a stronger greenback as foreign investors buy up dollars to invest in higher-yielding assets like Treasurys and other debt securities.

The dollar rally briefly reversed course on Monday as markets reacted to the nomination of Scott Bessent to lead the US Treasury Department, with the former hedge fund manager seen as a possible counter to some of Trump's more inflationary proposals. However, the US currency rallied again with the news of the President-elect's latest plans.

Rob Carnell, the Asia-Pacific head of research for ING bank, wrote on Tuesday that Trump's comments were likely to add volatility to the markets.

Trump's latest tariff threats signal how he'd approach relationships with various trade partners, rekindling memories of his first time in office.

"And so it starts," Catherine McKenna, Canada's former environment minister, posted on her BlueSky social-media account. She said the "amount of time and energy" the Canadian government spent on Trump's first administration was "bonkers."

A 25% tariff on Canadian imports to the US would be "devastating to workers and jobs in both Canada and the U.S.," Doug Ford, the premier of Ontario, wrote on X. "We need a Team Canada approach and response—and we need it now."

Trump added that he believed both countries had the "absolute right and power" to find ways to stop migrants from crossing into the US.

"We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!" Trump wrote.

Bill Ackman, the hedge fund manager and Trump ally, said the president-elect would use tariffs "as a weapon to achieve economic and political outcomes which are in the best interest of America."

"The 25% tariffs will not be implemented, or if implemented will be removed, once Mexico and Canada stop the flow of illegal immigrants and fentanyl," he wrote on X.

The federal government earned $74 billion from import duties in 2020, the last full year of Trump's first term, double the $37 billion collected in 2015, per congressional research.

More tariffs on China

In another Truth Social post on Monday, Trump also said he intended to slap China with an additional 10% import tariff — on top of any tariffs he was already planning to impose.

These tariffs, Trump said, are because China is to blame for "the massive amounts of drugs, in particular Fentanyl, being sent into the United States."

Asian markets fell, with the Nikkei 225 down 1.2% at 11:05 a.m. local time.

The US has long scrutinized China's role in the fentanyl supply chain and the ongoing opioid crisis. A 2020 Drug Enforcement Administration report, for one, identified China as a "primary source of fentanyl and fentanyl-related substances," which the DEA said came through the mail and commercial cargo.

In April, a congressional committee accused China of fueling the fentanyl crisis by helping to manufacture materials used in making the drug. Then, in August, the Chinese government said it was imposing new regulations on the manufacturing of these "precursor" chemicals.

Trump previously said he planned to impose 60% tariffs on Chinese goods. If Trump goes through with his earlier proposal, this additional 10% tariff would bring that percentage up to 70%.

It's unclear what China's response to this new era of Trump tariffs will be. But the last time Trump was president, his "America First" policies triggered a trade war with China. Now, economists say new rounds of tariffs could drive inflation, job losses — including in the US — and other economic issues.

Investors and companies alike are bracing for a raft of tariffs that Trump already has planned — and prices of goods are likely to go up.

Representatives for Trump and the foreign ministries of Canada, China, and Mexico didn't immediately respond to requests for comment.

Tariffs on both China and Mexico would hurt the US, an economist says

Canada, an energy giant, is the largest supplier of crude oil to the US.

In the past 12 months, Canada exported 173.6 billion Canadian dollars, or $123 billion, worth of energy products to the US, per Bloomberg calculations based on official data.

Energy, motor vehicles, and consumer goods to the US account for nearly 60% of all Canadian exports to the US, per Bloomberg.

Trump has cited different reasons to impose tariffs on China and Mexico, but the US could be hurt if both countries are targeted, an economist said on Monday.

Derek Scissors, a senior fellow at the American Enterprise Institute, a think tank, wrote that Mexico had already overtaken China as the top exporter to the US.

While there have been concerns that some Chinese firms are using Mexico to skirt US tariffs, "large-scale transshipment is a risk Mexico's unlikely to take" because it's incompatible with the spirit of the United States-Mexico-Canada Agreement and would raise the chances of Trump renegotiating the deal, Scissors wrote.

On Trump's beef with Mexico, Scissors wrote that there were two serious risks to retaliation against illegal migration with US tariffs: job losses in Mexico that would lead to even more migration and a reduction in the ability of US-based firms to replace goods from China.

He wrote that targeting Mexico and China together would "greatly increase" the inflation risks of Trump's previously promised tariffs.