Trade wars are more than tariffs and taxes—they’re economic battles that can reshape markets and disrupt global trade. When countries impose barriers on each other’s imports, it’s often a strategic move to protect their industries or gain leverage in international negotiations. USA-Canada tariffs significantly impacted almost every market.
What game is Trump playing?
Today, trade wars are back in the spotlight. Donald Trump just launched a major trade conflict, targeting Canada, Mexico, and China. The goal is to address trade imbalances, protect American industries, and secure favorable trade terms. However, trade wars are a double-edged sword. They can bring short-term gains but often come with long-term consequences, like rising consumer prices, retaliatory tariffs, and economic slowdowns. So, what are USA-Canada tariffs for?
According to the official White House statement, the United States is facing a national emergency due to the threat of illegal immigration and the influx of deadly drugs, particularly fentanyl. Under the International Emergency Economic Powers Act (IEEPA), President Donald J. Trump has imposed additional tariffs—25% on imports from Canada and Mexico and 10% on imports from China. Canadian energy resources face a lower 10% tariff.
These actions are designed to pressure Canada, Mexico, and China to address the crisis. The statement highlights Mexico’s alleged alliance with drug cartels, which are said to use safe havens to produce and transport narcotics, leading to significant overdose deaths in the U.S. It also accuses Chinese officials of failing to control the flow of precursor chemicals and money laundering linked to drug trafficking. Furthermore, a growing presence of cartel-operated fentanyl labs in Canada is also emphasized.
USA-Canada tariffs – long-term economic impact
Nearly half of the U.S. imports come from Canada, China, and Mexico. With the new tariffs in effect, Bloomberg Economics forecasts a significant drop in overall U.S. imports.
Estimates show that the tariffs could generate around $100 billion in additional annual tax revenue, but this gain comes at a cost. The tariffs are expected to disrupt supply chains, raise business production expenses, lead to job losses, and push up consumer prices.
Key sectors, including automotive, energy, and food, are at the highest risk. Gas prices in the Midwest could rise by as much as 50 cents per gallon due to the heavy reliance on crude oil imports from Canada and Mexico, which together supply over 70% of U.S. refineries. USA-Canada tariffs and those targeted in Mexico can also expose the automotive industry. Nearly half of the parts used in U.S. vehicle production are imported from these neighboring countries.
The fact that the first wave of Trump’s tariffs targeted the U.S.’s closest neighbors—Canada and Mexico, both heavily tied to the American economy—is significant. Mexico’s exports to the U.S. account for about 35% of its GDP, while Canada’s exports to the U.S. represent around 22% of its GDP. In contrast, U.S. exports to Canada make up roughly 1.5% of its own GDP, and exports to Mexico only about 1.2%.
Immediate market reaction to American tariffs
Early estimates suggest the U.S. economy could suffer if these tariffs remain in place for a year. Projections indicate a potential decline in GDP by 100 to 200 basis points and an increase in the PCE inflation rate by about 70 basis points. It highlights the economic risks tied to prolonged trade tensions, even for a country with relatively lower export dependency.
Stock market and FOREX after USA-Canada tariffs
The reactions to American tariffs are clearly visible in the behavior of the markets… and the response is not pleasant.
The S&P500 gap is down.
The most essential sentiment barometer among the indices, the S&P500 (US500), opens with a downward gap of 1.4%. As can be seen, the market is starting to price in the negative impact on corporate profits—at least in the short term.
Even more pronounced reactions can be seen in the currency market. The dollar is strengthening again against other currencies – the USD Index is growing by 1% to 109, and the EURUSD is falling by 1.2%.
USDMXN rising 2%.
The hardest hit are the currencies of countries that have been sanctioned. The Mexican peso clearly lost value against the dollar after the markets opened. The USDMXN pair is growing by 2% – one American dollar is now worth over 21 pesos. It is a price not seen in almost 2 years.
The USDCAD carnage.
The USDCAD pair is up over 1% today, and the U.S. dollar is now worth 1.47 loonies. Although it is not visible at first glance, the Canadian dollar shows historical weakness, being the weakest against the USD since… April 2003! USA-Canada tariffs immediately impacted the economic relationship between both countries massively.
However, as the H4 chart indicates, one should be careful when opening positions – the market is showing short-term signs of overheating on the RSI.
U.S. tariffs hit cryptocurrencies
While it’s hard to blame the crypto market for being directly exposed to the tariff war, cryptos are losing as if the tariffs were imposed on them.
BTC capitulation event.
BTC lost as much as 14% of its value over the weekend and is currently down 10%. The fight to hold key diagonal support is on, marked by the blue line on the chart. It is worth watching whether the daily candle closes above this level. Otherwise, the cryptocurrency may have a real problem. As indicated by the RSI, the BTC market is the most oversold since August 5, 2024, when we saw an increase in unemployment in the U.S.
ETH is losing its ground.
No good news for those longing for altseason. If Ether and its growth relative to BTC determined the rotation to alts, then as the ETHBTC pair indicates, it’s not happening right now. Ethereum has lost 12% to Bitcoin in a couple of hours, and the drop was even as significant as 24%. ETHBTC has been at its lowest level since the beginning of 2021.
Trump tariffs: Conclusion
Trump’s tariffs are shaking up global markets, but not without problems. The tariffs, meant to protect U.S. interests, could cause supply chain disruptions, higher costs, job losses, and rising inflation. Major industries like automotive and energy are under pressure, and markets are reacting with falling stocks, a stronger U.S. dollar, and weaker currencies in Mexico and Canada. Even cryptocurrencies are feeling the impact.
With increasing uncertainty, businesses and investors are preparing for more market instability in the coming months. The final impact will largely hinge on how long the tariffs remain and whether negotiations can help reduce tensions before more serious economic harm occurs.
