President Donald Trump on Saturday followed through with his threat to impose new tariffs on the United States’ two biggest trading partners, Mexico and Canada, whose leaders immediately announced steps to fight back.

“We need to protect Americans, and it is my duty as President to ensure the safety of all,” Trump said in a post on social media, in which he described the tariffs as a way to pressure the countries into doing more to stop the flow of illegal drugs and undocumented immigrants.

Trump said most goods from Mexico and Canada will see a 25% surtax, except for Canadian oil, which will see a 10% tariff. He also said he was imposing a new 10% tariff on goods from China on top of existing duties.

The tariffs won’t go into effect until just after midnight on Tuesday morning, however, leaving open a small window that could be used for a negotiated solution.

Tariffs are charges placed on imported goods as they enter the country, paid by the company or individual bringing the good in. Economists are almost unanimous that tariffs are passed on to the consumer as higher prices.

Whether Trump’s gambit will succeed is unclear, but the potential costs to the US economy could be huge, either in terms of higher prices for American consumers or via retaliatory measures that would mark the beginning of a continental trade war.

Canadian Prime Minister Justin Trudeau in a defiant nationally televised speech said there would be retaliatory tariffs imposed on $155 billion of US goods sold to Canada in response, in addition to “non-tariff” measures dealing with critical minerals and energy.

Trudeau said beer, wine, bourbon, perfume, clothing, household appliances and lumber would be among the American goods that would be hit with retaliatory tariffs.

Trump’s decision, he warned, “will harm Canadians but beyond that, it will have consequences for you, the American people.”

In Mexico, President Claudia Sheinbaum said she had instructed her administration to draw up tariff and non-tariff responses to Trump’s decision, calling it “Plan B’ after her initial skepticism Trump would follow through on his threat.

On Capitol Hill, reactions broke along partisan lines.

Representatiive Richard Neal, the top Democrat on the House Ways and Means Committee, blasted the tariffs.

“These reckless tariffs take a sledgehammer where a scalpel is necessary, and the American people will pay the price. Experts of every stripe agree: Americans should expect to pay more than $800 on average while the US output shrinks,” Neal said.

But Republican House Speaker Mike Johnson cheered Trump’s decision, posting on social media, “These countries are now on notice to work quickly to stop the madness. This is long overdue.”

Trump’s decision threatens to upend the US’ relationship with its neighbours, as all three economies have grown intricately intertwined in the 31 years since the North American Free Trade Agreement went into effect in 1994.

In 2023, the last full year for which data is available, Canada was the US’ largest trading partner, buying about $441 billion in goods and services from the U.S., according to the Bureau of Economic Analysis. Mexico was a close second, buying $367 billion of goods and services from America.

The pair were also the largest sellers of imports into the US. Mexican imports of goods and services totalled $529 billion, the most of any country, with Canada second, at $482 billion.

The US has run a trade deficit with Mexico, meaning Americans buy more from Mexico than they sell to it, since at least 1999. On the other hand, between 2023 and 2014, the United States saw five trade deficits and five trade surpluses with Canada.

But that did not deter Trump. 

“The fentanyl coming through Canada is massive. The fentanyl coming through Mexico is massive,” he said at a press conference last Thursday.

Data from the US Customs Service, however, contradicts part of Trump’s claim. In 2024, the amount of fentanyl seized at the southern border was over 21,000 lbs. Only 43 lbs were seized at the border with Canada.

Trudeau said less than 1% of fentanyl and less than 1% of unauthorised border crossings occur at the Canadian border.

Trump has long cited trade deficits as evidence individual countries are “ripping off” the United States, but economists in general are much more relaxed about the issue. Individual countries may have what economists call “comparative advantage” in producing specific goods or services that make it cheaper for another country to import them than try to also produce them itself.

And trade deficits are hardly anything new. The last time the US saw a surplus in international trade was 1975, under President Gerald R. Ford.

Trump’s move would be a challenge to the US-Mexico-Canada Agreement, a trade pact he negotiated with the two countries in his first term. The successor to NAFTA, the USMCA allows for a review in July 2026 and imposing new tariffs before then will likely be seen as violating it.

But more important for Trump may be the economic costs. The authors of a paper on the tariffs for the Peterson Institute for International Economics estimated last month that raising tariffs on the 3.3% of the US economy made up of imports from Mexico and Canada would result in a general increase in US prices of about 0.3%.

“The political problem for President Trump would not be so much the small increase in the average US price level as price spikes in recognisable goods, like gasoline at the pump in some locations, certain auto brands, avocados, and tomatoes,” the authors wrote.

Another possible side effect of tariffs, the authors wrote, would be closure of factories built on the Mexico side of the US-Mexico border. They were built after the previous North American Free Trade Agreement went into effect to take advantage of lower trade barriers. Without jobs, those workers may migrate north in search of work.