Punxsutawney Phil’s annual moment in the spotlight was overshadowed this weekend by President Donald Trump, who spurred predictions of an economic cold front with the signing of three executive orders imposing dramatic trade tariffs on Canada, Mexico and China.
Mexico Tariffs Delayed as Canada Vows to Fight Tariffs with Tariffs
Effective tomorrow, Feb. 4, 2025, Trump will impose a 25% tariff on imports of goods and a 10% tariff on energy resources from Canada, as well as a 10% tariff on imports from China. A 25% tariff on imports from Mexico was delayed for one month following talks on Monday between Trump and Mexican President Claudia Sheinbaum.
A similar pullback could be in the cards for Canada as well, if that country agrees to play ball as Mexico did. As part of the agreement President Sheinbaum said Mexico will immediately send 10,000 members of its national guard to U.S.-Mexico border to address drug trafficking concerns, a key reason Trump gave for imposing the tariffs.
“The sustained influx of illegal aliens and illicit opioids and other drugs has profound consequences on our nation, endangering lives and putting a severe strain on our health care system, public services, communities and schools,” read the executive order targeting Mexico. “These challenges threaten the fabric of our society. Mexico has played a central role in these challenges, including by failing to devote sufficient attention and resources to meaningfully stem the tide of unlawful migration and illicit drugs.”
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Trump lobbed similar accusations at Canada, and Canada has responded strongly. Prime Minister Justin Trudeau announced 25% tariffs on nearly $107 billion worth of U.S. goods sold in the country — including beer, clothing and household appliances — while expressing a sense of betrayal by its longtime ally.
Consumers, Retailers Brace for Tariff Impact
If the proposed tariffs take effect tomorrow, U.S. consumers could see higher prices on everything from vegetables and fuel to cars, alcohol and building supplies, with Trade Partnership Worldwide estimating that based on 2024 trade, the announced tariffs will cost the U.S. $233 billion this year. (Note: This number included the now-delayed Mexico tariffs.) In response, many consumers already are planning to spend less (49%), buy cheaper brands (40%) or switch to second-hand or local alternatives (50%), according to survey online shopping rewards app Smarty.
Trump’s attempts to rally the citizenry behind his plan have been less than reassuring: “Will there be some pain? Yes, maybe (and maybe not!),” he shared in a Truth Social post this weekend. “But we will make American great again, and it will all be worth the price that must be paid. We are a country that is now being run with commonsense — and the results will be spectacular.”
Industry groups have largely responded negatively to the news, as has the market, with Goldman Sachs warning that U.S. stocks may drop 5% in the near term as the tariffs impact earnings forecasts.
“We support the Trump administration’s goal of strengthening trade relationships and creating fair and favorable terms for America, but imposing steep tariffs on three of our closest trading partners is a serious step,” said the National Retail Federation in a statement, adding that it is currently in “an all-hand-on-deck posture” while everything plays out. “We strongly encourage all parties to continue negotiating to find solutions that will strengthen trade relationships and avoid shifting the costs of shared policy failures onto the backs of American families, workers and small businesses.”
“American consumers value local farmers and local food products, but also availability of products 12 months of the year, which requires imports of food products,” said Leslie Sarasin, President and CEO of the Food Industry Association in a statement. “With 1.6% retail and 7.5% food manufacturing net margins, tariffs will put incredible pressure on our members. New tariffs also will drive up the cost of doing business and food prices at a time consumers are extremely concerned about prices.”
China Tariffs Close ‘De Minimus’ Loophole
The Chinese tariffs seem to have raised slightly less ire among consumers and business watchdogs, particularly because the order would also end the “de minimus” loophole that has allowed Chinese discount retailers like Shein and Temu to dodge taxes on shipments under $800.
However, some analysts have warned about the tariffs’ potential negative impact on the fast-growing AI sector: “Donald Trump’s new import tariffs on some of his main trading partners will, if implemented, impact many sectors of the global economy, including the AI sector,” predicted Sebastian Pfeiffer, Managing Director of Impossible Cloud Network in comments shared with Retail TouchPoints. “If China retaliates — as it has promised — with equal tariffs on U.S. imports, the U.S. may have to invest much much more into its AI infrastructure, including the production of semiconductor chips.
“Perhaps more important though are the cloud services that house the enormous amounts of data that AI needs and generates,” Pfeiffer added. “As has been made clear by the smarter, more cost-effective approach of DeepSeek — China’s AI rival to ChatGPT — real innovation is also happening at the software level, giving China a major advantage. The same principles driving AI forward — flexibility, lower costs and a community-driven approach — are also shaping the future of cloud computing. If the U.S. is now to win the global AI arms race against China in the face of a trade war, much more innovative thinking is going to be needed on all fronts when it comes to investment in the AI sector.”
