Canada countered with staggered levies on US$107 billion worth of U.S. goods, while China imposed tariffs of up to 15%.

President Donald Trump made good on his threat to impose tariffs on imports from trading partners Canada and Mexico and doubled an existing tariff against China, prompting swift retaliation from some of the affected countries, which is fueling a trade war that could strain the global economy.

The new U.S. tariffs (25% tariffs on most Canadian and Mexican imports and an increase in the charge on China to 20%) apply to approximately $1.5 trillion in annual imports, an expansive move that signals to markets that the Republican president is committed to inflicting economic pain to generate new revenue and create domestic manufacturing jobs.

Canada responded with graduated tariffs on US$107 billion worth of U.S. goods, while China imposed tariffs of up to 15%, mainly on U.S. agricultural shipments. Mexican President Claudia Sheinbaum said Tuesday that her government would announce tariffs and other measures on Sunday in response to Trump's new accusations. She said she would likely speak with Trump on Thursday.

The moves, which came ahead of Trump's speech on Tuesday to Congress to outline his second-term priorities, mark a new phase in Trump's broadening economic and diplomatic policy process of restoring America's place in the world.

The confirmation of the levies dispels doubts that the U.S. president will actually follow through on his repeated threats to disrupt global economic ties to counter what he describes as unbalanced trade.

U.S. stocks fell at the open of markets Tuesday morning in New York. The S&P 500 fell by 0.8%. The Nasdaq 100 lost 0.7%. The Dow Jones Industrial Average fell 0.8%.

"We are in a new era where the mantra is to protect markets and the U.S. is a leader in this," said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis. "China retaliated by targeting Trump's most loyal voters in the agricultural sector. But that won't stop him."

Treasury Secretary Scott Bessent downplayed the significance of the market selloff on Tuesday.

"In the medium term, which is what we're focused on, we will focus on the average Joe. Wall Street has done great and can continue to do well, but we will focus on small businesses and consumers," Bessent said on Fox News.

According to the Yale Budget Lab, the tariffs raise levies on U.S. imports to their highest average level since 1943. That would mean additional costs of up to $2,000 for U.S. households. It would also mean significantly slower economic growth in the United States, especially if other countries retaliate, according to a report released Monday.

"The lesson from the first few weeks of Trump's presidency is that these things can change depending on the concessions countries are willing to make," Bloomberg Economics' Maeva Cousin and Rana Sajedi wrote in a research note Tuesday. "But if they endure, the impact will be significant."

And more tariffs are on the way....

Trump has indicated that more tariffs will be imposed, including reciprocal tariffs in April on all U.S. trading partners that have their own levies or other barriers to U.S. products, as well as 25% sectoral duties on automobiles, semiconductors and pharmaceuticals. These tariffs are also intended to be cumulative, in addition to any general tariffs on a particular country.

Trump has also said he is working on a 25% tariff on the European Union and is investigating levies on copper and lumber imports. Steel and aluminum tariffs will also go into effect on March 12, further affecting Canada and Mexico.

European Commission spokesman Olof Gill said in an emailed statement that the U.S. decision threatens to disrupt global trade, harm economic partners and create uncertainty. "These tariffs threaten deeply integrated supply chains, investment flows and economic stability on both sides of the Atlantic."

In the run-up to the deadline, U.S. stocks suffered their biggest drop of the year, while Treasury yields earlier fell to their lowest level in four months and oil fell to a three-month low.

The first stage of retaliation by the Canadian government was the imposition of 25% tariffs on approximately 30 billion Canadian dollars (US$20.6 billion) worth of goods from U.S. exporters, which would come into effect at the same time as the U.S. levies.

A second round with the same rate will be applied in three weeks on CAD 125 billion worth of products, a list that will include big-ticket items such as cars, trucks, steel and aluminum.

"Canada will not let this unjustified decision go unchallenged," Prime Minister Justin Trudeau said in a statement. The retaliation plan is the same one he announced in February after Trump signed his sweeping tariff executive order.

However, Commerce Secretary Howard Lutnick signaled Tuesday that more tariffs will be imposed on Canada, and took issue with tariffs on the country's dairy products, as well as its national sales tax and integrated auto supply chains. Those factors will be taken into account when the Trump administration calculates its reciprocal charges to America's northern neighbor.

"It will talk about all those products in Canada," Lutnick said on CNBC. "The idea is that it will restart, but that will start on April 2."

Later on Tuesday, Trump reiterated his criticism of restrictions on U.S. banks doing business in Canada, another sign that he is not willing to back down.

The 25% tariffs that will go into effect will apply to all imports from Canada and Mexico, with the exception of Canadian energy, which will be taxed at a 10% rate. Trump's tariffs on Canada and Mexico will have particularly harsh consequences for the automotive sector, an industry with supply chains that cross all three countries.

However, the Trump administration delayed eliminating the so-called "de minimis" exemption for low-cost goods until a plan is worked out to raise revenue from those imports. That means that, for now, Canadians and Mexicans can continue to ship low-cost goods across the border without tariffs.

Trump initially announced tariffs on North American neighbors and China in February, intending to punish them for what he called a failure to block flows of undocumented immigrants and illegal drugs, such as fentanyl, across U.S. borders. But while a 10% tax on Chinese imports went into effect last month, Trump delayed taxes on imports from Canada and Mexico until March 4, giving them time to negotiate a reprieve. That respite didn't last.

"The failure of both nations to arrest traffickers, seize drugs or coordinate with U.S. law enforcement constitutes an unusual and extraordinary threat to the security of the United States," the White House said in a fact sheet when the tariffs went into effect.

This leaves uncertain the fate of a trade pact that Trump negotiated with Canada and Mexico during his first term and risks further straining the U.S. economy and reigniting still-simmering inflation.

In response, China imposed tariffs of up to 15% on U.S. products and banned exports to some defense companies in retaliation to the Trump administration's new tax. Soybeans, beef and fruits are among the products facing a 10% tariff, according to an announcement from the Ministry of Finance.

"For now, the measures remain relatively restrained," said Lynn Song, chief economist for mainland China at ING Bank. "This retaliation shows that China remains patient and has refrained from 'turning the tables,' so to speak, despite the recent escalation."

China also halted imports of U.S. logs on Tuesday after pests were detected in U.S. imports, according to a statement, in addition to blocking soybeans from three U.S. companies, according to a separate statement.

Trump has expressed a desire to talk to Chinese leader Xi Jinping, but they have yet to speak a month after the U.S. president raised the possibility of a call to negotiate a deal.

New tariffs are a risky gamble for a president elected in part because of dissatisfaction with his predecessor's handling of the economy, amid polls showing voters want Trump to do more to counter inflation.

Trump has dismissed warnings from economists that the tariffs threaten to drive price growth and will fail to generate the revenue the president and his allies have predicted, as they seek to assuage concerns about the cost of a tax-cut package in Congress costing trillions.

Kate Sullivan - Josh Wingrove, Bloomberg