5 takeaways from Trump's new tariff threat

President-elect Trump has put the country’s top three trading partners on notice less than two months before he takes office.

The former president threatened Monday to impose steep 25 percent tariffs on all goods from Canada and Mexico — two key U.S. allies — and ramp up tariffs on China with an executive order he plans to sign on Day 1.

While new tariffs were a key part of Trump’s reelection campaign, the scale and targets are a notable escalation with far-reaching effects on the U.S. and global trade.

Here are five takeaways from Trump’s latest threat.

Trump is mixing trade and border policy

Trump has touted tariffs for years as his preferred way to boost U.S. manufacturing and push other countries for more favorable trade terms. But his latest tariff threat is aimed at forcing both Mexico and Canada to crack down on their borders with the U.S.

In a Monday post on Truth Social, Trump said he will maintain 25 percent tariffs on all Canadian and Mexican goods “until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country.”

“Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem,” Trump wrote. “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's latest threat is not the first time he's used economic measures as leverage in broader fights.

The former president threatened to seal the U.S.-Mexico border entirely during his first term amid a dispute over immigration with the Mexican government. Doing so could have caused serious economic harm in both countries.

Trump also imposed tariffs on foreign steel and aluminum using a provision of trade law that allowed the president to levy import taxes to protect national security.

Rep. Henry Cuellar (D-Texas), whose district spans part of the U.S.-Mexico border, said Tuesday he expects the new tariff threat to spur talks between Trump and the Mexican government on border issues.

“I think this will definitely get Mexico to the table so we can solve the problem about immigration and fentanyl,” Cuellar said in an interview on NewsNation’s “The Hill.”

Top Mexican and Canadian officials, however, say they are ready to dig in against Trump’s threat.

Key US allies are fuming

Trump’s threat spurred outrage across the northern and southern U.S. borders, prompting backlash and warnings of retaliatory tariffs from both Mexico and Canada.

Mexican President Claudia Sheinbaum said Tuesday she hoped to resolve Trump’s concerns through dialogue, which she called “the best path to achieve understanding, peace and prosperity for our two countries." She also asserted that recent steps taken by the Mexican government have kept migrant caravans away from the U.S. border despite Trump’s claim.

If talks fail, she warned, Mexico will respond with its own tariffs.

“One tariff would be followed by another in response, and so on until we put at risk common businesses,” Sheinbaum said. “It is unacceptable and would cause inflation and job losses in Mexico and the United States,” she added.

Top Canadian economic officials also warned Trump against upsetting the “balanced and mutually beneficial” relationship between the U.S. and Canada, pointing out how much Canada imports from the U.S.

Tariffs loom over auto, fuel, home prices

The economies of the U.S., Mexico and Canada have become deeply intertwined since the enactment of the North American Free Trade Agreement in 1993. Canada and Mexico are the U.S.’s top trading partners and loom large in many sectors of the U.S. economy.

Steep new import taxes on Canadian and Mexican goods could lead to serious costs for Americans.

“Motor vehicles and auto parts, aircraft manufacturing, petroleum imports, electronics, agriculture, plastics, medical instruments and non-ferrous metals all figure to be affected by a significant increase in import taxes,” wrote Joe Brusuelas, chief economist at audit and tax firm RSM, in an analysis published Tuesday.

U.S. automakers import billions of dollars in parts and products from Mexico, where many companies operate plants that work closely with U.S. counterparts. Tariffs on those products could push U.S. car prices even higher after years of staggering increases after the pandemic.

The U.S. also imports billions of dollars in oil and lumber from Canada, which could fuel higher energy and home prices — two sectors where Trump pledged to make things cheaper.

Tahra Jirari, director of economic analysis for the tech trade group Chamber of Progress, calculated that Trump’s new tariff would raise the cost of construction goods from Canada by $41 billion.

New tariffs on Chinese goods could also jack up the prices of electronics and other industrial goods in U.S. households.

Jirari calculated that Trump’s new tariffs could cost U.S. households an additional $127 billion on Chinese goods.

Iconic US products could face tariffs

U.S. producers faced retaliatory tariffs throughout Trump’s first term, particularly from China, the primary focus of Trump’s trade-related grievances.

After Trump imposed tariffs on foreign steel and aluminum in 2018, Canada, Mexico, China, the European Union and several other nations imposed their own import taxes on U.S. goods.

The retaliatory tariffs targeted key U.S. agricultural exports such as pork, soybeans and fruit juices, which hit U.S. farmers hard. While the Trump administration deployed billions to help farmers bear the costs of tariffs, the retaliation cost the U.S. roughly $13 billion, according to a federal study.

The EU also targeted U.S. exports core to the American identity, such as Harley-Davidson motorcycles, bourbon and blue jeans.

Markets are calm for now

Trump’s trade agenda is looming over financial markets, which are bracing for higher costs and disruption driven by the president-elect’s tariffs and the likely response from other nations.

Trump wrestled for weeks over his selection of a Treasury secretary, seeking a candidate that would support his mission to upend international trade while keeping markets steady. He eventually landed on Scott Bessent, an investor and donor to his 2024 campaign with a strong reputation on Wall Street.

While the stock market could turn south and pose a challenge for Bessent once Trump takes office, it’s remained mostly calm in the days since Trump’s announcement.

The Dow Jones Industrial Average, S&P 500 index and Nasdaq all closed Wednesday with losses of roughly 0.5 percent, a meager downturn driven largely by investors cashing out on tech stocks.