The Tariff Wars Are Here — And They’re Messy

Published Feb 3, 2025, 11:26 PM

Is it a trade war or is it whiplash? 

On Saturday, President Trump announced new 25% tariffs on imports from Canada and Mexico, and an additional 10% tariff on Chinese goods. On Sunday, he said tariffs were coming for the European Union, too.

The tariffs were initially supposed to take effect at 12:01 am Tuesday morning eastern time, but since that weekend announcement, the tariffs on Mexican and Canadian goods have been delayed for one month. Meanwhile, the tariffs on Chinese goods are proceeding as scheduled.


On today’s Big Take podcast, Bloomberg’s global economy reporter Enda Curran and host Sarah Holder make sense of the news — and discuss how this could disrupt the US economy and reshape global commerce.

Bloomberg Audio Studios, podcasts, radio news.

The tariff wars are on. The opening shot came Saturday when President Trump announced new twenty five percent tariffs on imports from Canada and Mexico and an additional ten percent tariff on Chinese goods. On Sunday, he said tariffs were coming for the European Union too. It was the most sweeping act of protectionism taken by a US president in almost a century, and it reverses three decades of economic integration in North America. Endocurrent covers the global economy for Bloomberg, and he says, even though Trump has been talking a big game on tariffs for a while, many were surprised by their scale.

This is a sweeping implementation of tariffs, probably coming faster than many people expected. And of course the breath of it covering all the goods come in from these countries has come as a surprise too many already.

And it says we're seeing reactions from people in the targeted countries.

We had the reports last night of the booing of the US anthem at sports games. We had the news in Ontario of those state owned alcohol outlets taking US bottles off of.

Their shelves, and in the US, consumers are showing signs of anxiety too.

We had plenty of people last night tweeting warnings from their electricity, their gas supplier that their costs are going up due to the tariffs. We had people tweeting images of avocado prices going up in real time because what's going to happen in Mexico side. I mean, there is a potential here for this to become personalized and Oakley pretty quickly.

But by Monday it became clear that the tariffs were up for active negotiation. After Trump spoke with Mexico's President Claudia Sinbaum, she agreed to say ten thousand Mexican troops to the border to stem the flow of fentanyl, and Trump said he delayed tariffs on Mexico for one month. During a press conference in the Oval Office Monday afternoon, he foreshadowed more talks to come, and We're going to have a big negotiation with Mexico. I'll be involved too, and President Shinbaum will be involved to see whether or not we can work something out on the tariffs. China. Will be speaking to China probably over the next twenty four hours, and just A few hours later, outgoing Canadian Prime Minister Justin Trudeau shared a readout from his own conversation with Trump. He said Canada would be strengthening its border security and launching a joint fentanyl strikeforce with the US, and he said the US would also be pausing its tariffs on Canada for at least thirty days. The rapidly unfolding negotiations sent markets topsy turvy. After Shinbaum confirmed that tariffs on Mexico would be paused, the peso turned positive, regaining the ground it had lost since Friday. While equities in Asia and Europe dropped earlier in the day, the news also helped temper their losses, and even before Trudeau's announcement, the Canadian dollar pared its decline based on the expectation that Canada's tariffs would be delayed. This is the big take from Bloomberg News. I'm Sarah Holder today on the show A New Era in Trade under Trump two point zero. How will the tariff wars disrupt the global economy and how long will they last? As of Monday evening, New York time, the tariffs on China are set to take effect a minute after midnight. And the tariffs on Canada and Mexico could be coming in a month. Now that we finally have a sense of what these tariffs actually look like, I asked Bloomberg's and the Current how they're expected to reshape the US economy.

I guess there are two angles on economists. It will drive up prices in the near term, and it will cause businesses to have a think about their supply chains and a word they're investing. So near term, potentially higher prices and some disruption to how we buy goods and how those goods are produced. Longer term, President Trump and proponents of strategy say it will reshape supply chains, it will reshape the US manufacturing base. It will bring back production and manufacturing to the US. That's the near term pain for longer term gain strategy. President Trump himself said last night that there will be some pain involved in this process. That is a big picture take. There is skepticism around whether that can happen or not because people will say, look, ultimately, it's not economical. It's too expensive to bring some of its manufacturing back to the US. It's more efficient for the US to produce to buy some of these goods from overseas. So there is a bigger picture that claims this will ultimately strengthen the US manufacturing base in the economy. But Sarah, the's skepticism about how much of that will be achieved to We'll.

Say a little bit more about some of those stated goals of these tariffs. Why does Trump think this short term pain will be worth it? What is the aim of this tariff rollout?

There seems to be rolling aims with the tariff rollout at the moment, Sarah. On the one hand, there is the idea that the US is buying too much stuff from one country. It should be making more of that produce at home. So the thinking there is if you put tariffs on goods coming in from the country, then those manufacturers and producers will say we should just move to the US set up a base there. That's er point one on the tariffs. But President Trump has also said tariffs will raise money for the government. He's talked about the revenue raising aspect of it at a time when the government, of course is looking to reign in and spending given where the fiscal deaths it is. Again, there's pushback there. People will say to you, hang on it's ultimately consumers who will be paying this effective as a new tax, rather than any foreign exporter. Then the third leg in all of this is President Trump is now attaching tariffs to as a kind of a weapon or a tool to control the flow of fentanyl and migrants into the country.

How are tariffs supposed to curb the drug trade?

So the point is the carrot and stick that President Trump is using here, and he's saying, look, if you don't do more to crack down on fentanyl with your security services and the like, then we will use these tariffs to impose pain and your economy. And that's the carent stick. To be clear, Canada makes a point that only a very small portion of the fentanel that gets into the US comes across their border, so they've pushed back hard on that side of things. On Mexico side, President Shinbam has made clear the authorities there are doing everything they can. We don't yet know what specifics, what specific ask President Trump is put in the table, or you know, what threshold might satisfy him that both Mexico and Canada are responding the way he wants to. But don't forget also that China is part of his story too, and that's why President Trumps put ten percent tariffs on China. They are obviously in the fentanyl supply chain. So watch close. You can see how President Trump responds to Beijing on this matter as well.

So it's a negotiating tactic and we'll see how well it actually works.

Certainly is a negotiating tactic. Sarah and several of President Trump's own incoming officials have said the threat of tariffs can be used as a negotiating tactic. There are several economists on Wall Street who think these tariffs will be short lived. There will be some negotiation, there will be a deal made, these tariffs will come off. Nonetheless, though we're in on chartered territory here, it's very unusual to see the president putting taras to twenty five percent and key trading partners, and that's where we are, and it's not clear when they will come back off.

Why levy smaller tariffs on China than on Canada and Mexico, these key trading partners. What political signal does that send?

Yeah, China is obviously part of the fentanyl story, so by extension, he's also putting ten percent tariffs on China as a form of card and stick approaches there too. Now question is why has he gone with TARIFSA ten percent on China when on the campaign trail he spoke by taros off as much as maybe fifty sixty percent. We don't yet know who's his inner thinking on that, but we know a couple of things. The President is looking into the original trade agreement he signed with China. He wants to make sure that trade agreement has been fulfilled, and of course, if it hasn't been fulfilled, there will likely be some kind of vitality response from the US against Chinese goods.

Trump imposed tariffs during his first term as well. But how different are these tariffs.

They're quite different. Those tariffs in the first term were a shock because they were breaking with convention. It was the US president, leader of the world's big free, open economy, imposing tariffs, going against the grain of the World Trade rule Book and how to do business. But in truth those tariffs were somewhat narrow and limited. So yes, they were disruptive. Yes they caused some pain to the businesses involved in that chain and uncertainty, But bigger picture, we can now see that their managible. This time around, President Trump is moving much faster and much broader. Take Mexico and Canada. He's putting tariffs on goods across the board coming in from Mexico and Canada. Not just targeting will say aluminium or steel or auto's, it's everything, including what goes into our shopping basket, alcohol, avocados, squash, clothing, you name it. That's different and again similar story with China. Ten percent across the board. It's not targeted per se. It's a specific gun components or industrial intermediary bits and pieces of machinery and equipment. It's on everything that we buy. I should also say, Sarah. Within the deluge of announcements, President Trump is also targeting the what's called the day Minimus threshold. There is a threshold at the moment if you buy something and imported from China or anywhere else that and it's valued at less than eight hundred dollars, you don't have to pay the tariffs that and it was a cheaper way to get goods, small items into the country. While as part of his trade crackdown, President Trump is also targeting that and it's bound to have an impact in the e commerce space, and.

What you're describing is a broad, immediate, sharp disruption to the US economy. Given that, how has the market reacted so far?

Markets have been whip selled by this news. We saw the initial reaction, the dollar strengthened, other currencies like the Canadian dollar weekends to its weeks in two thousand and three, and stocks sold off. But when we had the news of a potential agreement with Mexico earlier on Monday, then we saw some relief in the markets and that self and stocks started to stabilize. But I think these trade talks, these trade negotiations will continue to be a source of volatility for the markets in the weeks and months.

Ahead after the break the industries these tariffs will squeeze first, and how price increases could exacerbate inflation in the US. The tariffs Trump announced on Canada, Mexico, and China are sweeping and they could have immediate effects on prices. I asked Bloomberg's and the current what part of the US economy tariffs will hit first?

I think the first part of the US economy will be the importer or the buyer of these goods. So whether you're buying parts in the auto chain industry, a car part where you're making car parts and you suddenly have to buy whatever unit it is that will have an extra twenty five percent charge on top of it operating within already slim margins that in that industry, Well, then there's going to be an impact on say the auto manufacturing base, and there have been warnings from union and industry leaders that this will have a material impact on their productions. The energy industry, it's a bit unclear at the moment because energy has had something of a caravaut when it comes to these tariffs, because President Trump is talking about a ten percent tariff on energy and oil coming from Canada, and that's to ensure there's no kind of flow through to businesses and households here in terms of a spike in energy costs. And then for households, for US consumers buying their veg buying their produce, buying their clothing, buying their beverages, whatever it is that they buy that's coming in on that side, mostly from Mexico, it's going to drive up their bills. I mean, there's an estimate from one bank that it could add around three and a half thousand dollars to the average households family for outgoing expenses.

And this is on top of the inflation that American households are already experiencing.

That's exactly where the warnings come into this. There is a view that on like I say, in President Trump's first term, when inflation was well under control, this time around, the US is just coming out of a major inflation crisis. Prices remain above the target that the Federal Reserve sets and where it wants it to be, so that whole story hasn't gone away completely. But now there is this concern that you're going to drive up the prices for cars and for food and everything else, and it will add to inflation pressure. But again this is where we come back. President Trump said that it will be pain, but he says this will be worth it for the greater good in terms of how he's in visiting how the American economy and manufacturing sector needs to be reshaped right.

Trump says part of the motivation behind the tariffs is protecting the American manufacturing industry and bringing manufacturing to the US. He says, we'll mean no tariffs on those companies creating or saving American jobs. Can you explain his rationale here? How do you expect these tariffs to impact the labor market in the US in the short.

Term, well, near term. It's clearly going to be disruptive. As we've spoken about, Sarah, A lot of economs will tell you it will drive up prices for both businesses who buy components or input material from overseas and households. So then you're going to have pressure on workers on the inflation front. Then there is the disruptive side of it. If you are a business that relies on buying cheaper components or cheaper inputs from Canada or Mexico or China, but now you're facing higher costs with slim margins, can you use a business person pass on those costs to your end purchaser. If you're a household with somebody who's working in the manufacturing sector, you're facing higher bills and potential uncertainty. That's the first round effect. The bigger picture the President Trump is pushing is that when these tariffs are in place, foreign producers, foreign factories and indeed American producers overseas will say we need to relocate back to the US. Get behind this tarerfall build their plants in America, higher local workers spend and invest, and leader renaiscence of the manufacturing industrial base. That's the big theory of it. There's skepticism about how this will play out, but near term, at the very least, we know there will be disruption. The big question then is how businesses respond longer term.

That's an interesting point. And the American workers are also American consumers and this will impact them as consumers first and perhaps quite intensely.

Yeah, the cost of these food stuff's coming in from Mexico. Just think about it. If it's going to have a twenty five percent increase across the board and that gets passed on from the importer to the wholesaler to the household, then that's a material hit, an ion the shopping basket. Over time.

If these tariffs do go into effect, what will that mean for Canada and for Mexico's economies.

So if the tariffs go into effect the twenty five percent from Mexico and Canada, it would be a big deal because the US is the biggest export market for both Mexico and Canada. Some economists say, be Mexican and Canadian economies could fall into recession, such as their alliance on doing business with the US.

The implementation of these tariffs so far has been pretty chaotic. Negotiations have been unfolding quickly. Leaders are promising retaliation even if the US sides not to implement the full tariffs as proposed. What kind of impact has this tariff announcement and rollout already had.

I think on the one hand, obviously the President campaigned on tariffs. His campaign and his staff are saying, listen, this is what we've promised and this is what we are delivering on. But for the business community, there's no doubt it is a source of confusion for them. It does muddle the outlook in terms of where can they locate their supply chains. Are we going to come under taris if we're in Mexico, if we sell to Mexico, if we buy from Mexico, sell to Canada, buy in Canada, will become under these new tariffs? How will impact our business? So there are lots of question marks from business people, and I spoke to quite a few this morning and they are uncertain. So we're in this space whereby even if near term temporary agreements are reached. Everybody is thinking about a plan being in terms of what they would do in case these tariffs are imposed at some point.

Thank you so much, Enda, Thank you, Sarah. This is the Big Take from blooms I'm Sarah Holder. This episode was produced by David Fox and Jessica Beck. It was edited by Tracy Samuelson and Greg White. It was fact checked by Adrian A. Tapia and mixed and sound designed by Alex Sugiura. Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole beemster Boor. Sage Bauman is Bloomberg's head of podcasts. If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

Big Take

The Big Take from Bloomberg News brings you inside what’s shaping the world's economies with the sma 
Social links
Follow podcast
Recent clips
Browse 630 clip(s)