President-elect Donald Trump on Monday promised massive increases in tariffs on goods from Mexico, Canada and China from the first day of his administration, a policy that could sharply raise costs for American businesses and consumers.

Trump said the move will be in retaliation for illegal immigration and “crime and drugs” crossing the border.

“On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% tariff on ALL products entering the United States, and the ridiculous open borders,” wrote Trump in his Truth Social platform. “This tariff will remain in effect until drugs, especially Fentanyl, and all illegal aliens stop this invasion of our country!”

Trump said America’s neighbors “can easily solve this long-dormant problem.”

Similarly, Trump said China will face higher tariffs on its goods — 10% above all existing tariffs — until it prevents the flow of illegal drugs into the United States.

“I have had many conversations with China regarding the massive amounts of drugs, particularly Fentanyl, being sent into the United States – but to no avail,” Trump wrote on Truth Social.

The president-elect claimed in the post that Chinese officials promised him the country would execute drug dealers caught trying to funnel drugs into the United States, but “never followed through.”

In response to Trump’s announcement, Chinese embassy spokesman Liu Pengyu said his country has communicated with the US on counter-narcotics operations and that “the idea that China is knowingly allowing fentanyl precursors to flow into the United States is completely inconsistent is with the facts and reality.”

“On the issue of US tariffs on China, China believes that economic and trade cooperation between China and the US is mutually beneficial in nature. No one will win a trade war or a tariff war,” Liu said in a statement to CNN.

CNN has contacted the embassies of Mexico and Canada for comment.

Canadian officials responded to the announcement in a statement posted to

“We will of course continue to discuss these issues with the new government,” Canadian Deputy Prime Minister Chrystia Freeland and Public Safety Minister Dominic LeBlanc said in the statement.

An important policy change

If the punitive tariffs are implemented, they could wreak havoc on U.S. supply chains and industries that rely on goods from the country’s closest trading partners.

“The measures proposed tonight could hit a number of strategic U.S. industrial sectors hard, increasing the tax burden by approximately $272 billion per year, raising commodity prices, raising interest rates and undermining the strength of an already vulnerable household sector,” he said. Karl Schamotta. , chief market strategist at Corpay Cross-Border Solutions.

Following the announcement, the Canadian dollar fell 1.2% against the US dollar, and the Mexican peso fell 2% against the dollar. The Chinese yuan, although controlled by the government, traded higher – above 7.6% – in offshore markets.

While investors believed the tariffs could ultimately strengthen the dollar, U.S. financial markets also took a hit. The extraordinary tariffs would dramatically increase the cost to Americans of everyday goods that had previously crossed the border without taxes.

This stunning shift could hamper economic growth, especially if inflation-challenged consumers spend less in the face of higher costs.

U.S. stock futures, which were higher before Trump’s announcement, fell slightly, with Dow futures down 160 points, or 0.3%. Nasdaq futures were down 0.4%, and the broader S&P 500 also fell 0.4%. US government bond prices fell.

What America imports

The United States’ largest import from Canada is oil, which hit a record 4.3 million barrels per day in July, according to the U.S. Energy Information Administration. America also imports cars, machinery and other raw materials, plastics and wood from Canada, according to the United Nations Comtrade.

America gets the majority of its cars and auto parts from Mexico, which overtook China as the biggest exporter to the US in 2023, according to trade data released by the Commerce Department earlier this year. Mexico is also a major supplier of electronics, machinery, oil, and optical equipment, and a significant amount of furniture and alcohol comes to the United States from the country.

The United States imports a significant amount of electronics from China, in addition to machinery, toys, games, sporting goods, furniture and plastics.

During Trump’s first term, CNN reported that he imposed tariffs on about $380 billion in goods that applied to thousands of Chinese-made products, including baseball hats, luggage, bicycles, TVs and sneakers. The Trump tariffs also hit foreign steel, aluminum, washing machines and solar panels.

Many U.S. imports from Canada and Mexico are exempt from tariffs under the USMCA trade deal between the three countries that Trump pushed for during his first administration. It is not clear how Trump plans to implement the proposed tariffs without violating the USMCA.

Trump has routinely cited the passage of the USMCA, which replaced NAFTA, as a political victory and a highlight of his presidency.

Trump’s tariff plan

Trump campaigned by using tariffs as a cudgel against foreign countries — as he did during his first administration — to grow domestic manufacturing while increasing tax revenues to offset the large revenue disparities his proposed tax cut plan would create.

Tariffs essentially serve as a tax on goods imported into the United States. Although Trump has repeatedly said the targeted foreign country pays the tariffs, they are actually paid by companies that buy the imported goods — and those costs are typically passed on to American consumers. Most mainstream economists believe the tariffs will be inflationary, and the Peterson Institute for International Economics has estimated that Trump’s proposed tariffs would cost the average American household more than $2,600 a year.

Scott Bessent, Trump’s pick for Treasury secretary, has said tariffs would not add to inflation if implemented properly. Wall Street welcomed Bessent’s appointment as he is widely expected to roll out tariffs gradually.

While Bessent, if confirmed by the Senate, would be partially responsible for implementing the tariffs, Trump as president, in coordination with the Secretary of Commerce and the U.S. Trade Representative, would wield significant power to impose tariffs with the stroke of a pen. He did that when he was last in the White House, imposing high tariffs on goods, mainly from China.

The problem with tariffs is that they often result in retaliation from the targeted countries, sparking a trade war — which is exactly what happened during Trump’s first term. That weakened the effect of the tariffs on domestic production, as manufacturers’ goods became less attractive to foreign buyers.

Trump has promised significantly higher tariffs during his second term. While he continues to discuss many different figures, he has proposed a 60% tariff on all Chinese goods, as well as a blanket tariff of 10% or 20% on all other US imports.

This story has been updated with additional context and developments.

CNN’s Matt Egan and Jack Forrest contributed to this report.

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