Bloomberg Economics estimated that Trump’s move will raise the average U.S. tariff rate from its current level, near 3 percent, to 10.7 percent—and “deal a significant supply shock” to the domestic economy. Their analysis projects that U.S. gross domestic product (GDP) will suffer a 1.2 percent hit and a widely watched gauge of core inflation will increase by 0.7 percent.

Trump’s tariffs deliver on a warning to the three countries for what he says is a failure to prevent the flow of undocumented migrants and illegal drugs, though he has also teased the possibility of a reprieve if Mexico and Canada take steps to address his concerns. The measures take effect at 12:01 a.m. on Tuesday, leaving only a small window for last-minute negotiations.

The Republican’s orders also included retaliation clauses that would increase U.S. tariffs if the targeted countries respond in kind. The new measures will be on top of existing trade levies on those countries.

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What Bloomberg Economists Say...

Energy imports from Canada, including oil and electricity, will be spared the full 25 percent levy and will face a 10 percent tariff instead. White House officials said that was intended to minimize upward pressure on gasoline and home-heating-oil prices.

Trump’s move is explosive in scale and goes well beyond his first-term tariffs. Steep tariffs will raise the cost of key goods like food, housing, and gasoline for Americans, while the overall fallout threatens to spill widely across the countries, which are the largest three sources of U.S. imports, accounting for almost half of total volume.

Trump campaigned on a platform of extensive tariffs, and he followed through, though he dialed back planned measures on China while increasing tariffs on Mexico and Canada. Most mainstream economists and many business groups warn that trade levies will disrupt supply chains, raise prices for consumers already wary of inflation, and reduce global trade flows.

Tariffs Will Impact a Wide Array of U.S. Businesses

The move represents yet another instance where Trump is testing the bounds of his emergency authorities under federal law—already a hallmark of his second term in the White House. The tariff orders invoke the International Emergency Economic Powers Act and expand an earlier declaration to address what he calls a “threat to the safety and security of Americans.”

Markets were gripped by uncertainty as they awaited Trump’s decision on tariffs, and now there are looming questions about how the levies will impact stocks, as well as companies and consumers. Automakers such as General Motors Co., Ford Motor Co., and Stellantis NV—which have global supply chains and massive exposure to Mexico and Canada—could see significant swings. Industry groups warned that because of the tight integration between U.S. and Canadian manufacturing, the imminent tariffs could have a steep impact on the industry.

“The imposition of tariffs will be detrimental to American jobs, investment, and consumers,” Jennifer Safavian, the president of Autos Drive America, said in an emailed statement. “U.S. automakers would be better served by policies that reduce barriers for manufacturers, ease regulations that hinder production, and create greater export opportunities.”

Trump’s actions also closed a loophole that exempted packages worth less than $800 from tariffs. Extinguishing the so-called de minimis exemption for small parcels sent to the United States from the three countries could significantly impact online retail—though the scope of the measure wasn’t immediately clear. While such changes would most directly affect Chinese retailers, American consumers who benefit from those platforms’ cheap goods would likely suffer, too.

Parts of the United States, including the Pacific Northwest and Northeast U.S., are deeply reliant on electricity or gas flows from Canada. Under an energy emergency Trump declared his first day in office, refined gasoline and diesel, uranium, coal, biofuels, and critical minerals were all given the lower 10 percent tariff.

Oil industry advocates, however, have warned against even a 10 percent increase in the cost of crude inputs into Midwestern refineries, which have few near-term options to substitute with U.S. supplies.

Democrats wasted no time in pouncing on messaging around how the trade moves could impact families’ budgets. “These tariffs will be devastating for American consumers,” Congressman Greg Stanton, an Arizona Democrat, and some 40 colleagues wrote on Saturday.

“Trump’s tariffs on Mexico and Canada will make your life more expensive,” Stanton said more bluntly in a separate post on X.

U.S. Trading Partners Retaliate

Mexico was strident in rejecting the Trump administration’s allegation that it had alliances with drug traffickers and suggested that the U.S. government curb demand and use of narcotics internally. “Drug use and distribution is in your country, and that is a public health problem that you have not addressed,” Mexican President Sheinbaum said in a post on X. “It is not by imposing tariffs that problems are resolved, but by talking.”

Mexico also implement non-tariff measures in retaliation, while calling for cooperation with the United States on topics including security and addressing the fentanyl public health crisis, she said.

The Mexican economy could enter a “severe recession” if Trump’s tariffs remain in place for more than a quarter, according to Gabriela Siller, director of economic analysis at Grupo Financiero Base. “If the tariffs last several months, the Mexican peso depreciation could reach record highs.”

Canada’s Trudeau said American beer, wine, food, and appliances will be among the many items subject to Canadian tariffs, and his country is also considering measures related to critical minerals. He encouraged Canadians to buy locally made products and skip U.S. vacations.

The orders enacting the tariffs do create a process to remove them. Homeland Security Secretary Kristi Noem can inform Trump if the countries have taken adequate steps to alleviate concerns over migration and drugs, and he can remove the tariffs if he agrees. But it’s not clear how realistic a prospect that is. Canada, for instance, already took steps to tighten its border to appease Trump, and those measures didn’t deter him.

In a speech Saturday night, Trudeau invoked Canada’s long history of partnership with the United States. “We have fought and died alongside you,” he said, citing World War II, the Korean War, and the recent war in Afghanistan. “Together, we’ve built the most successful economic, military, and security partnership the world has ever seen,” Trudeau said, urging Trump to partner with Canada on their shared challenges.

China’s Commerce Ministry pledged to file legal proceedings to the World Trade Organization (WTO) in a Sunday statement but stopped short of explicitly threatening counter-tariffs. President Xi Jinping’s government has in recent months been treading carefully with Washington, avoiding any trade retaliation that could escalate tensions.

Although the European Union wasn’t among the targets of this weekend’s trade measures, Trump has often complained about what he sees as unfair treatment of American exports such as cars sold in Europe. On Sunday, German Finance Minister Joerg Kukies cautioned against overreacting.

“One should not react in panic to the first decision, but rather see it as the beginning of negotiations, not the end,” Kukies told German business representatives in Riyadh at the start of a trip aimed at improving trade ties in the Middle East.

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