U.S President Donald Trump doubled down and escalated the trade war with China while granting other nations a 90-day pause on “reciprocal” tariffs.
On Wednesday afternoon, the Trump administration bumped the tariff on Chinese goods to a whopping 125 per cent from the previously imposed 104 per cent, effective immediately. That was after China retaliated with an 84 per cent levy.
United States Treasury Secretary Scott Bessent said in a news conference that countries other than China will still get a 10 per cent baseline tariff.
The news of the reprieve sent stocks soaring after trillions of dollars were lost over the last three days. As of Wednesday market close, the S&P 500 jumped 9.5 per cent while the S&P TSX Composite index was up 5.4 per cent.
Asked whether the baseline applies to Mexico and Canada, Bessent said “yes.”
But that appears to be in contradiction to last week’s “Liberation Day” announcement that spared “reciprocal” tariffs on Mexico and Canada for goods that comply with the Canada-United States-Mexico Agreement.
A Department of Finance Canada official said they are aware of the recent comments from the U.S. administration and will provide further comment once they have more information.
“China kept escalating and escalating and now they have 125 per cent tariffs that will be effective immediately,” Bessent said.
“President Trump cares about trade and we want to negotiate in good faith.”
Speaking from the White House shortly after the announcement, Trump said he believes a deal will eventually be made with China.
But economists worry that the world’s largest economic powers are getting increasingly embroiled in a dangerous and unprecedented trade war that could knock out the global economy and, they say, drag Canada into a recession in the process.
“This is very frightening,” said Pau Pujolas, international economics professor at McMaster University. “We are on the verge of the collapse of world trade, which is going to be a disaster for everyone.”
“There is no angle in which any of these things is good for any Canadian,” he said. “It’s very likely that we are going to have a recession in Canada — a major one.”
The level of duties imposed by the U.S. and China is “prohibitive,” says Dan Ciuriak, a trade consultant and former deputy chief economist at Foreign Affairs and International Trade (Global Affairs Canada). That means trade between the two giants could immediately come to a halt.
“We have not seen anything like this.”
According to Bloomberg Economics, 100 per cent tariffs on Chinese goods would essentially wipe out all U.S. imports from the Asian manufacturing powerhouse over the medium term.
Assuming tariffs on Canadian imports to the U.S. remain significantly lower than the ones imposed on other countries, Americans might turn to Canada to buy goods, which, in theory, could benefit Canadian producers, Ciuriak added.
But there will now be a glut of Chinese products in the international market, causing an “import surge” into Canada.
This will ultimately harm Canadian producers, according to Ciuriak, as prices for Chinese imports will plummet and they will lose market share.
While falling prices might sound like good news to the Canadian consumer, the economy will shrink, meaning there will be less business investment, more layoffs, and generally worse standards of living.
“Increasing pressure on China will depress Chinese demand for commodities, which has a negative impact on Canadian growth prospects,” said Mirza Shaheryar Baig, global foreign exchange strategist at Desjardins.
“For example, for the copper we export, the largest consumer of copper in the world is China.”
Ngozi Okonjo-Iweala, director-general of the World Trade Organization, warned that the collapse in global trade resulting from the escalating U.S.-China trade war could lead to a nearly seven per cent drop in global real gross domestic product over the long-term.
With files from Tonda MacCharles and Nathan Bawaan.
