Businesses scramble to contain fallout from Trump's tariffs on Canada, China and Mexico
A Minnesota farmer worries about the price of fertilizer. A San Diego entrepreneur deals with an unexpected cost increase of remodeling a restaurant. A Midwestern sheet metal fabricator bemoans the prospect of higher aluminum prices.
Businesses knew that Trump’s import taxes -- tariffs -- on America’s biggest trading partners were scheduled to take effect Tuesday. But many of them assumed they’d get a reprieve. After all, the unpredictable president had delayed the tariffs on Canada and Mexico for 30 days right before they were originally supposed to kick in on Feb. 4.
No such luck this time.
At midnight Tuesday, the United States imposed 25% tariffs on goods from Canada and Mexico, starting a trade war with its closest neighbors and allies. Trump also doubled his 10% levies on Chinese imports in a series of moves that took U.S. tariffs to the highest level since the 1940s. Canadian energy was shown some mercy, getting taxed at a lower 10%.
The three countries promptly announced retaliatory tariffs of their own.
Commerce Secretary Howard Lutnick said later on Tuesday that the U.S. would likely meet Canada and Mexico “in the middle,” with an announcement coming as soon as Wednesday. Lutnick told Fox Business News the tariffs would not be paused, but that Trump would reach a compromise.
The longer the tariffs stick, the more damage they can do, forcing companies to decide between eating higher costs and passing them along to inflation-weary consumers. If the tariffs and the retaliation last a year, economist Kathy Bostjancic of Nationwide estimates, U.S. economic growth will be more than 1 percentage point lower and inflation 0.6 percentage points higher than they would have been otherwise.
Manuel Sotelo, who runs a Mexican truck fleet that carries goods across the southern U.S. border, didn’t expect that Trump would roll the dice on $2.2 trillion worth of American trade with Mexico, Canada and China.
“I really did think last afternoon or last night Trump would have reversed course,’’ Sotelo, who has a Trump bobblehead behind his desk, said Tuesday.
That's in no small part because Mexico has already taken steps to address the ostensible grievances behind Trump’s Tuesday tariffs — the flow of illicit drugs and immigrants — including sending 10,000 troops to the border.
But the president went ahead with the tariffs, and now businesses are scrambling to deal with them.
David Spatafore, who owns several restaurants in San Diego, said his businesses have already been pummeled by the surging price of eggs and dairy over the last month. Tuesday’s tariffs are just the latest blow.
“Everything across the board is impacted,” Spatafore said.
One of his restaurants has also been in the middle of a remodel, which has grown increasingly expensive as tariffs hit Canadian lumber and steel.
“We were in the middle of a quote for a custom oven being made,’’ he said, when the contractor added the cost of the tariffs to his estimate. Thin margins in the restaurant industry mean it’s hard to eat the higher expenses.
“Where are you supposed to absorb it?’’ he said.
At Mission Produce in Oxnard, California, which packs avocados and mangos and distributes them to supermarkets and restaurants around the world, co-founder and CEO Steve Barnard won’t need to raise prices right away. Mission Produce still has some inventory of Mexican avocados and other produce ripening in its U.S. warehouses.
But “if this thing lasts 10 days or more, our costs will be substantially different,’’ he said. “We’ll have to come to the table and figure something out.”
Barnard expects big retailers will resist price increases, while smaller, independent chains might have to raise prices sooner because they have less pre-tariff inventory on hand.
“My company will feel an immediate, detrimental impact as a result of these tariffs,” Traci Tapani, co-president with her sister of Wyoming Machine, a sheet metal fabricator in Stacy, Minnesota that relies on Canadian aluminum, said in a statement. Tapani is the vice chair of the U.S. Chamber of Commerce’s Small Business Council. “The threats and uncertainty have made it hard to make business decisions, and these kinds of tariffs will make it extremely difficult for small businesses like mine to grow.”
In Cannon Falls, Minnesota, about 45 miles (72 kilometers) south of Minneapolis, farmer Danny Lundell is particularly worried that Trump’s import taxes will drive up the price of Canadian potash fertilizer.
“We need potash to raise healthier crops,’’ he said. “And it doesn’t matter if you’re big, medium or small, it’s going to affect you.’’
Minnesota’s Democratic governor, Tim Walz, visited Lundell’s farm Tuesday to criticize Trump for jeopardizing relationships with his state’s biggest trading partners.
Higher costs aren’t the only consequence of Trump’s trade wars. There’s also the uncertainty as the president threatens, delays and actually imposes import taxes.
“Things are unfolding so quickly,” Brian Cornell, CEO of discount retailer Target, told reporters Tuesday. “We will watch this carefully and understand: Are these long-term tariffs? Is this a short-term action? How will this unfold over time? I think all of us are speculating.’’
Uncertainty can take an economic toll as businesses delay plans to make investments and sign up new suppliers until they know which countries and which products are likely to be tariff targets.
During Trump’s first-term trade battles, U.S. business investment weakened late in 2019, prompting the Federal Reserve to cut its benchmark interest rate three times in second half of the year to provide some offsetting economic stimulus.
Adding to the uncertainty now are Trump’s plans for more tariffs, not least his call for "reciprocal tariffs" to raise U.S. duties to match higher tariffs charged by other countries. Trump could also impose more tariffs on the European Union, India, computer chips, autos and pharmaceutical drugs.
“Everything else that’s coming down the pipeline is what adds to the uncertainty,’’ said Antonio Rivera, a partner in the international trade practice at the law firm ArentFox Schiff.
The Whiskeyjack Boutique gift shop in Windsor, Ontario, has been getting some usual customers: Americans stopping in to apologize for Trump’s decision to start a trade war with Canada.
“They are mortified by what’s happening, and they don’t support what’s going on, and they don’t like how Canada’s being kind of dragged through the mud on this,” said Katie Stokes, co-owner of the shop.
Stokes has also heard Canadians planning to cancel plans to take vacations in the United States.
“It’s almost remorseful and sad, like people are upset, and they don’t love how this is playing out,’’ she said.
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Associated Press Staff Writers Jaimie Ding in Los Angeles; Anne D’Innocenzio in New York;, Dee-Ann Durbin in Detroit; Mike Householder in Windsor, Ontario, Canada; Megan Janetsky in Mexico City; and Steve Karnowski in Minneapolis contributed to this report.
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