Will Trump's Tariff Gamble Pay Off?

Trump continues his bold moves towards tariffs

President Donald Trump has certainly made a dramatic impact on his return to office and he isn't bothered about who he upsets in the process. 

Trump announced on Saturday that he will impose a 10% tax on China and 25% tariffs on Canada and Mexico, advancing one of his most controversial campaign pledges so far. 

China immediately felt provoked and retaliated, raising concerns about the potential effects on the world economy. Shortly after the 10% US tariffs went into force, China quickly said that it was looking into Google for antitrust violations and the finance ministry of China declared 10% duties on US crude oil, farm equipment, heavy displacement cars, and pickup trucks, and 15% levies on coal and liquefied natural gas.

China is now enforcing export restrictions on a number of vital minerals, including tungsten, tellurium, ruthenium, molybdenum, and ruthenium-related products, in order to "protect national security interests," the country's commerce ministry and customs office announced on Tuesday. 

Setting aside China for a moment, Canada also hit back and declared 25% retaliatory duties on more than $150 billion in US products, including food, appliances, and alcohol.

Although it hasn't disclosed any precise figures, Mexico has also stated that it would strike back. 

The US, Canada, and Mexico trade almost $1.8 trillion annually, yet the balance of power is skewed in the US's favor, so that any retaliation may be pointless:

The United States accounts for approximately 78% of Mexico's annual total exports, whereas Canada's annual total exports to the United States account for approximately 75%. About 30% of all US exports are made to Mexico and Canada combined each year.

According to calculations by Bloomberg, these orders will increase the average tariff rate in the United States from 3% to 10.7% and reduce US GDP by 1.2%.

China continues to be the wild card in this situation. Its economic and geopolitical clout surpasses that of Canada or Mexico. As tariffs are imposed against the backdrop of a chip-based innovation war, the AI arms race contributes to the already existing conflict between the US and China.

Only $130 billion worth of products and services were exported from China in 2024, compared to almost $400 billion in imports. China is still seeking a resolution with Trump, but talks are currently on hold as Trump is in "no rush". The dilemma continues but seems to be one Trump will not budge on. 

The EU seems to be next in the firing line with Trump's comments two days ago, but encourages the UK situation "can be worked out" to avoid tariffs. 

The markets have certainly felt the effects this week. We'd love to hear your thoughts on these dramatic events.

Follow us for more insights as they unfold with our daily market update to give you everything you need.