President Donald Trump has moved forward with a plan to put sweeping tariffs on all goods coming into the United States from Canada and Mexico, threatening a trade war with its closest trading partners — and higher prices for Americans on thousands of consumer goods.

The U.S. was scheduled to begin collecting a 25% tariff on nearly all goods from Mexico and Canada starting at 12:01 a.m. Tuesday, according to a draft public notice of the rules posted Monday. Canadian energy products would be levied at a lower rate of 10%.

Businesses ranging from automakers to alcohol producers have warned that the added costs for companies to import goods from Canada and Mexico will have wide-ranging implications across the Americaneconomy. While some companies will look to source their goods from other countries or move production to the U.S., those moves could take years.

In the meantime, companies have said they will have to pay the tariffs and then pick from two options: either pass the added costs along to consumers in the form of higher prices, or absorb the fees and either cut costs elsewhere or takelower profits.

On Monday, Trump also added an additional 10% tariff on all imports from China on top of the 10% tariff he put on Chinese goods last month, which includes products such as electronics, footwear, medicines and cosmetics. Those tariffs are in addition to tariffs already put in place during Trump's first term in office.

Trump said he is putting the tariffs in place, in part, to pressure the countries into stopping undocumented immigrants and fentanyl from enteringthe U.S. via their borders. More than 107,000 people died from drug overdoses in 2023, according to the Drug Enforcement Administration,with nearly 70% of those deaths from opioids, including fentanyl. Nearly all of the 21,900 pounds of fentanyl seized in 2024 was at the southern border, with just 43 pounds of fentanyl seized at the northern border, according to data from Customs and Border Protection.

Late Tuesday, Commerce Secretary Howard Lutnick indicated relief may be in sight. In an appearance on Fox Business News, Lutnick said an interim agreement with Canada and Mexico that would allow their tariffs to be rolled back to some degree could come as soon as Wednesday.

"The Mexicans and the Canadians are on the phone with me all day today, trying to show that they'll do better," Lutnick said. "And the president is listening because, you know, he's very, very fair and very reasonable. So I think he's going to work something out with them."

Lutnick continued: "It's not going to be a pause, that pause stuff, but I think he's going to figure out you do more, and I'll meet you in the middle some way, and we're going to probably be announcing that tomorrow. So somewhere in the middle will likely be the outcome the president moving with the Canadians and Mexicans, but not all the way."

The start of back-and-forth retaliation

The move risks a tit-for-tat trade war with Mexico, Canada and China that could hurt U.S. businesses selling their products to those countries and upended one of the signature deals of Trump's first term: the USMCA trade agreement between the U.S., Mexico and Canada.

That agreement, which Trump touted at the time as a negotiating victory, largely allowed products to move between the three countries tariff-free, similar to how they had for decades under the previous North American Free Trade Agreement or NAFTA. Under the terms of the deal, the agreement wasn’t supposed to be up for renegotiation until July 2026, but Trump’s move to impose new tariffs could throw the entire agreement into jeopardy.

Mexican President Claudia Sheinbaum indicated in remarks Tuesday that her country would respond by Sunday. In a news conference, she said the action would include "tariff and nontariff measures." Sheinbaum also said that Mexico had already taken steps during the past month to crack down on drug gangs and trafficking flows.

Canada will move ahead with an earlier plan to impose 25% tariffs on 155 billion Canadian dollars ($107 billion) of American goods if the U.S. tariff took effect as scheduled. Tariffs on $20.7 billion worth of goods, including orange juice, peanut butter, wine and coffee, will take effect immediately, while tariffs on the remaining $86.3 billion in U.S. products will begin in 21 days, Canadian Prime Minister Justin Trudeau said in a statement late Monday. They will remain until the U.S. trade action is withdrawn.

"We don't want this. We want to work with you as a friend and ally, and we don't want to see you hurt, either, but your government has chosen to do this to you," Trudeau said at a news conference Tuesday in remarks directed at the American people.

Then, pivoting to speaking directly to Trump, Trudeau said: "Even though you're a very smart guy, this is a very dumb thing to do."

He noted that even though less than 1% of fentanyl seized by the U.S. is coming across the Canadian border, the country has been taking action to further crackdown on the illegal drug trade. As a result, Trudeau said there was a 97% drop in fentanyl seizures from January compared to December, "to a near zero low of less than half an ounce seized in January."

China said it will impose additional tariffs on U.S. goods March 10, include a 15% tariff on chicken, wheat, corn and cotton and a 10% tariff on sorghum, soybeans, pork, beef, fruits, vegetables, and dairy and fish products. China said that the U.S. tariffs undermine cooperation between the world’s two largest economies and that they hurt American businesses and consumers, as well as international trade.

“The Chinese people have never believed in coercion or intimidation, nor do we succumb to bullying and hegemonic tactics,” Chinese Foreign Ministry spokesperson Lin Jian said at a regular briefing in Beijing on Tuesday.

Trump had previously threatened to place a 25% tariff on goods from Canada and Mexico on Feb. 1 before saying he was delaying those tariffs for a month, after the leaders of the two countries said they would be stepping up security at their borders. On Monday, Trump told reporters there was “no room left for Mexico or for Canada” to negotiate on the new import duties.

Economists across the political spectrum have warned that the tariffs, which are paid by the U.S. company importing the goods, would increase what consumers pay for a range of goods, including vehicles, electronics, produce and lumber. Stocks fell nearly 2% Monday, the worst day since December.

“The American people are counting on President Trump to bring down costs and grow the U.S. economy. Tariffs on Canada and Mexico put those goals in serious jeopardy and risk destabilizing the North American economy,” Michael Hanson, senior executive vice president of public affairs for the Retail Industry Leaders Association, said in a statement Monday. “Stacking tariffs on household goods will also raise costs on American families, millions of whom have struggled through the worst bout of inflation in forty years.”

Specific sectors where the tariffs will be felt most

Automakers are among the industries that will feel the greatest impact from the tariffs, sincevehicles and their components cross between Canada, the U.S. and Mexico multiple times during the production process. Ford CEO Jim Farley warned last month that the threat of the tariffs was creating chaos in the auto industry and could have devastating consequences for American automakers.

“Let’s be real honest, long-term, a 25% tariff across the Mexico and Canadian border will blow a hole in the U.S. industry that we have never seen,” Farley said at an investor conference last month.

The tariffs could add as much as $12,000 to the price of a new car, according to a report from the Anderson Economic Group. The American Automotive Policy Council, the industry association representing GM, Ford and Stellantis, said they believe their vehicles and parts that meet the tariff-free requirements under the previously negotiated trade deal during Trump’s first term should be exempt from the tariffs.

“Our American automakers, who invested billions in the U.S. to meet these requirements, should not have their competitiveness undermined by tariffs that will raise the cost of building vehicles in the United States and stymie investment in the American workforce, while our competitors from outside of North America benefit from easy access to our home market,” former Missouri Gov. Matt Blunt, president of the association, said in a statement.

The Aluminum Association, which represents aluminum production and jobs in the U.S., said in February that the U.S. sources two-thirds of the primary aluminum it uses every year from Canada and about 90% of scrap metal from either Canada or Mexico. It added that U.S.-based smelters, even at full capacity, “cannot produce nearly enough metal to meet demand.”

The tariffs could also contribute to higher grocery prices since Mexico is one of the top suppliers to the U.S. of tomatoes, avocados, berries and peppers. Rising food prices have been a top concern for consumers and voters, with grocery costs up around 25% over the past four years — an issue Trump pledged to tackle on the campaign trail.

The tariffs could also increase the prices of beer and alcohol imported from Mexico and Canada and hurt sales of U.S. spirits sold in those countries. The Distilled Spirits Council estimates that a 25% tariff on distilled spirits imports from Mexico and Canada could lead to a loss of more than 31,000 U.S. jobs. In 2024, the U.S. imported $5.2 billion worth of tequila and $93 million worth of mezcal from Mexico, as well as $622 million worth of Canadian spirits, according to the association.

“Tariffs on spirits products from Canada and Mexico will jeopardize the industry’s contribution to the U.S. economy,” the group said in a statement. “The North American spirits sector is highly interconnected and, as a result, tariffs on tequila and Canadian whiskey will harm U.S. spirits companies that have these products in their brand portfolios.” 

Trump has indicated that further tariffs will be on the way. He reiterated Monday that previously announced “reciprocal” tariffs would be coming April 2, and that tariffs on “external product” from the agriculture industry would also be imposed that day, without offering further details.

Last month, Trump imposed a 25% tariffs on all steel and aluminum imports to the United States from all countries, and raised his 2018 aluminum tariffs from 10% to 25%, without exceptions or exemptions.

Trump has repeatedly cited tariffs as a tool he can use to raise revenue to pay for other domestic spending priorities and as a measure to pressure companies to relocate production to the U.S.