Beijing warns US ‘nobody will win in a trade war’ after Trump vows to impose tariffs on China, Mexico and Canada

Beijing has told Donald Trump that “nobody will win in a trade war” after the president-elect vowed to sign an executive order imposing a 25% tariff on all products coming in to the United States from Mexico and Canada, with additional tariffs on China.

Trump accused China of failing to stop the number of drugs entering the US. China is a major producer of precursor chemicals that are acquired by drug cartels, including in Mexico, to manufacture fentanyl, a highly potent synthetic opioid.

In a post on his social media platform Truth Social, Trump said: “I have had many talks with China about the massive amounts of drugs, in particular Fentanyl, being sent into the United States – But to no avail … Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America.”

Liu Pengyu, a Chinese embassy spokesperson, said China had taken steps to combat drug trafficking after an agreement was reached last year between Joe Biden and Xi Jinping.

“The Chinese side has notified the US side of the progress made in US-related law enforcement operations against narcotics,” he said in a statement. “All these prove that the idea of China knowingly allowing fentanyl precursors to flow into the United States runs completely counter to facts and reality.”

Trump also posted: “On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders.” He cited what he called the “long simmering problem” of “thousands of people pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before”.

Canada’s deputy prime minister, Chrystia Freeland, released a statement on Monday evening saying that the country places the highest priority on border security and the integrity of its shared border with the US. Trump and the Canadian prime minister, Justin Trudeau, spoke on Monday night about trade and border security, Reuters reported, citing a Canadian source directly familiar with the situation.

Arturo Sarukhan, a former Mexican diplomat, said the decision would violate the revised free trade pact between the United States, Canada and Mexico, known as the USMCA, and said the new tariffs would “put North American relations in a downward spiral”.

Mexico’s finance ministry said: “Mexico is the United States’ top trade partner, and the USMCA provides a framework of certainty for national and international investors.”

A tariff is a tax placed on goods when they cross national borders. Import tariffs such as those proposed by Trump can have the effect of protecting domestic industries from foreign competition while also generating tax revenue for the government. But economists widely consider them an inefficient tool that typically leave consumers and taxpayers bearing the brunt of higher costs.

Countries generally levy retaliatory tariffs of their own in response to tariffs such as those Trump is proposing, which can spark a trade war – as happened between the US and China during Trump’s first presidency.

Key events

What Trump has announced on tariffs

In a series of posts on his Truth Social platform, Donald Trump has announced he will apply new trade taxes on a number of the US’s closest trading partners from day one of his second term.

Trump has said that, as soon as he gets into office, he will impose a 25% tariff on “ALL products coming into the United States” from Mexico and Canada.
He says the tariffs will remain in place until both countries clamp down on migrants and drugs crossing the border into the US.
Trump also says he will impose a further 10% tariff “above any additional tariffs” on all products coming into the US from China.
It was not entirely clear what this would mean for China as Trump has previously pledged to end China’s most-favoured-nation trading status and slap tariffs on Chinese imports in excess of 60% – much higher than those imposed during his first term.
The reasons for the China tariff, Trump said, was their failure to curb the supply of drugs into the US. China is a major producer of the chemicals used to manufacture fentanyl.

Joe Biden is to propose expanding coverage of anti-obesity drugs for millions on Medicare and Medicaid, which could cut out-of-pocket expenses for some by as much as 95%, a White House official said on Tuesday.

This would enable more Americans to afford new weight loss medications that can help prevent type 2 diabetes and lower the risk of death and heart attacks by up to 20%, but cost as much as $1,000 a month without insurance coverage, Reuters reported.

Current rules for the Medicare and Medicaid government health insurance programs cover the use of drugs such as Mounjaro, Ozempic and Wegovy for certain conditions like diabetes, but not for obesity as a condition on its own.

A new proposed regulation, to be published by the Department of Health and Human Services later on Tuesday, would require Medicare to cover these drugs as a treatment for obesity, expanding access for an estimated 3.4 million Americans with Medicare.

It would also ensure access to the medications for approximately four million adult Medicaid enrollees, the White House official said.

Reuters reported earlier this month that intense demand for anti-obesity drugs has triggered supply issues, with many patients turning to cheaper compounded versions sold online.

Trump considering naming AI czar but Musk not in frame, reports say

Away from the trade tariff news, Donald Trump is considering naming an “AI czar” in the White House to coordinate federal policy and governmental use of artificial intelligence, Axios reported on Tuesday, citing sources.

Tesla chief Elon Musk will not be the AI czar, but is expected to be involved in shaping the future of the debate and use cases, the report added.

Germany’s vice-chancellor Robert Habeck has urged the European Union to seek talks with the US to ward off a damaging trade war following Donald Trump’s vow to impose trade tariffs on Mexico, Canada and China.

Habeck says the EU must “respond united, and not tear itself apart into two or three blocs of countries but speak as a united Europe”.

“We must make clear that ultimately, everyone loses: the United States, the United States’ economic area and Europe,” he said.

Proposed tariff would be ‘devastating’ to US and Canada, Ontario premier says

Ontario premier Doug Ford says a 25% tariff on all goods imported from Canada to the US would be “devastating to workers and jobs” in both countries.

“We need a Team Canada approach and response – and we need it now,” Ford said on X. He urged Justin Trudeau to call an urgent meeting with Canadian premiers.

Mexican senator tells US to ‘stop consuming drugs’ in response to Trump tariff threat

The head of Mexico’s Senate, Fernández Noroña, has responded to Trump’s vow by asking what tariffs Mexico should impose on the US to force people there to stop consuming drugs and illegally exporting weapons to Mexico.

Mexico’s finance minister has previously warned that any taxes imposed on Mexican goods could trigger retaliatory tariffs. “If you put a 25% tariff on me, I’ll have to react with tariffs and I’m your main importer,” Rogelio Ramírez de la O previously said.

Trump’s threatened new tariffs could violate the terms of the US-Mexico-Canada Agreement (USMCA) on trade, Reuters report. The deal, which Trump signed into law, took effect in 2020 and continued the largely duty-free trade between the three countries.

During the rancorous talks leading to the USMCA, Canada and the United States at one point imposed sanctions on each others’ products. Trump will have the opportunity to renegotiate the agreement in 2026, when a “sunset” provision will force either a withdrawal or talks on changes to the pact.

After issuing his tariff threat, Trump held a conversation with Canada’s prime minister Justin Trudeau in which they discussed trade and border security, a Canadian source familiar with the situation told Reuters. “It was a good discussion and they will stay in touch,” the source said.

Trump could be counting on the threat of tariffs to prompt an early renegotiation of USMCA, said William Reinsch, a former president of the National Foreign Trade Council.

“This strikes me more as a threat than anything else,” Reinsch said. “I guess the idea is if you keep hitting them in the face, eventually they’ll surrender.”

Mexico’s lower house leader Ricardo Monreal, a member of the ruling Morena party, urged “the use of bilateral, institutional mechanisms to combat human, drug and arms trafficking.”

“Escalating trade retaliation would only hurt the people’s pocketbooks and is far from solving underlying problems,” he said in a post on social media platform X.

Trump’s announcement sparked a dollar rally. It rose 1% against the Canadian dollar and 1.6% against the Mexican peso, while share markets in Asia fell, as did European equity futures. S&P 500 futures eased 0.1%. The US dollar also rose to its highest level since 30 July 30 against China’s yuan

Donald Trump’s trade tariffs could cost US consumers $2,400 a year

Donald Trump’s vow to impose 25% import tariffs on products from Mexico and Canada, and 10% from China, when he takes power in January has sent global stockmarkets into a spin, Mark Sweney report in the Business live blog.

The US dollar rose but shares and European stock markets fell at the start of trading as investors worried about the ramifications of Trump’s threats. Copper prices fell, weighed down by a stronger US dollar and Trump’s pledge to levy more tariffs on Chinese products.

Research by ING has estimated that if the costs of the new tariffs are fully passed on to consumers, then Americans will face having to pay $2,400 more per capita annually for goods.

The report says that also taking into account potential labour shortages due to Trump’s plans to crackdown on immigration – with a vow to stage the “largest deportation operation in American history” – there could be a 1% increase in inflation in the US.

James Knightley, ING chief international economist for the US, said:

“President-elect Donald Trump has promised to implement sweeping new tariffs aimed at protecting American industries, promoting domestic manufacturing, and reducing reliance on foreign imports.

“However, tariffs imposed during the first Trump term – and continued and extended under Biden – did not achieve all of the promised outcomes. Furthermore, our research shows that if the new tariffs are fully passed on, they could increase inflation and cost American consumers up to $2,400 per capita annually.

The report points to policies implemented under the first Trump administration, such as a 20% tariff on all imported large residential washing machines introduced in 2018, which resulted in the retail cost climbing 12%.