Market Wire: Canada and Mexico Launch Retaliatory Measures Against US

In a response that could add momentum to an escalatory cycle, Prime Minister Justin Trudeau this evening said “Canada will be responding to the US trade action with 25 percent tariffs on $155 billion dollars worth of American goods,” including immediate tariffs on $30 billion as of Tuesday, and another $125 billion in 21 days* to allow Canadian companies to seek alternatives”. “This is a threat against our whole country,” he said, and “as part of our response, we are considering, with the provinces and territories, several non-tariff measures including some related to critical minerals, energy procurement, and other partnerships”.

The announcement comes after the Trump administration earlier issued three executive orders imposing tariffs of 25 percent on all imports from Canada and Mexico, with the exception of Canadian “energy resources”, which will be subject to a 10 percent levy. Goods from China will face a 10 percent tariff in addition to existing tariffs.

The orders, which harness powers given to the president under the International Economic Emergency Powers Act, contain “retaliation clauses”, which threaten to “increase or expand in scope the duties imposed” if the targeted countries respond with tariffs against the United States.

In a response published on Twitter two hours ago, Mexican president Claudia Sheinbaum said she had authorised economy minister Marcelo Ebrard—a veteran of negotiations with the first Trump administration—to implement tariff and non-tariff measures against the US.

With positions hardening in all three North American capitals, exchange rates are likely to suffer a series of sharp moves when trading begins in Asia tomorrow evening, right through to the North American equity market open on Monday morning. The Canadian dollar and peso are vulnerable to drops exceeding two or three percent, but could see more limited price action if investors take a more optimistic view on how negotiations might progress.

The consequences of an extended trade war within what was—until a few hours ago—one of the world’s most successful economic partnerships are almost too terrible to comprehend, but markets will nonetheless have to begin planning for one.

*All values in Canadian dollars