President Donald Trump said the sweeping tariffs that he has imposed on Mexico, Canada and China may cause "short term" pain for Americans as global markets reflected concerns the levies could undermine growth and reignite inflation.
Trump said he would talk on Monday with the leaders of Canada and Mexico, which have announced retaliatory tariffs of their own, but downplayed expectations that they would change his mind.
"I don't expect anything dramatic," Trump told reporters as he returned to Washington from his Mar-a-Lago estate in Florida. "They owe us a lot of money, and I'm sure they're going to pay."
He also said tariffs would "definitely happen" with the European Union, but did not say when.
Economists said the Republican president's plan to impose 25% tariffs on Canada and Mexico and 10% tariffs on China - the United States' three largest trading partners - will slow global growth and drive prices higher for Americans.
Trump says they are needed to curb immigration and narcotics trafficking and spur domestic industries.
"We may have short term some little pain, and people understand that. But long term, the United States has been ripped off by virtually every country in the world," he said.
Financial market reaction on Monday reflected concerns about the fallout from a trade war. U.S. stock futures , fell more than 2%. Shares across Asia, including Hong Kong (.HSI), Tokyo (.N225) and Seoul (.KS11) also slid around 2%. The mainland China market was shut for Lunar New Year holidays.
The Chinese yuan, Canadian dollar and Mexican peso all slumped against a soaring dollar. With Canada and Mexico the top sources of U.S. crude oil imports, U.S. oil prices jumped more than $1, while gasoline futures rose 3%.
North American companies braced for new duties which could upend industries from autos to consumer goods to energy.
Trump's tariffs will cover almost half of all U.S. imports and would require the United States to more than double its own manufacturing output to cover the gap - an unfeasible task in the near term, ING analysts wrote.
"Economically speaking, escalating trade tensions are a lose-lose situation for all countries involved," the analysts wrote in a note on Sunday.
Other analysts said the tariffs could throw Canada and Mexico into recession and usher in "stagflation" - high inflation, stagnant economic growth and elevated unemployment - at home.
TUESDAY DEADLINE
The Trump tariffs, outlined in three executive orders, are due to take effect 12:01 a.m. ET (0501 GMT) on Tuesday.
Some analysts said there was some hope for negotiations, especially with Canada and China.
Goldman Sachs economists said the levies are likely to be temporary but the outlook is unclear because the White House set very general conditions for their removal.
A White House fact sheet gave no details on what the three countries would need to do to win a reprieve.
Trump vowed to keep them in place until what he described as a national emergency over fentanyl, a deadly opioid, and illegal immigration to the United States ends.
China has said it will challenge the tariffs at the World Trade Organization and take other countermeasures, but also left the door open for talks with the United States.
Its sharpest pushback was over fentanyl.
"Fentanyl is America's problem," China's foreign ministry said, adding that China has taken extensive measures to combat the problem.
Mexican President Claudia Sheinbaum, raising her fist in the air in a speech outside the capital, vowed resilience. She accused the United States of failing to tackle its fentanyl problem and said it would not be solved by tariffs.
Sheinbaum said she would provide more details on Monday of the retaliatory tariffs she ordered on the weekend.
Canada said on Sunday it will take legal action under the relevant international bodies to challenge the tariffs.
Prime Minister Justin Trudeau also encouraged Canadians on Sunday to boycott their longtime ally after ordering retaliatory tariffs against $155 billion of U.S. goods, from peanut butter, beer and wine to lumber and appliances.
Canadian officials said they were preparing measures to help business who might be hurt by the trade war.
Trump has heaped derision on Canada in particular, with calls for the country to become the 51st U.S. state. On Sunday, he said Canada "ceases to exist as a viable country" without its "massive subsidy."
NATIONAL EMERGENCY?
Trump declared a national emergency under two laws, the International Emergency Economic Powers Act and the National Emergencies Act, which give the president sweeping powers to impose sanctions to address crises.
Trade lawyers said Trump could face legal challenges for testing the limits of U.S. laws. Some Democratic lawmakers decried what they called a blatant abuse of executive power, while others warned about rising prices.
Even some Republicans criticized Trump's action. "It will be paid for by American consumers. I mean, why would you want to get in a fight with your allies over this?" Republican Senator Mitch McConnell said in an interview on CBS's "60 Minutes".
A Reuters/Ipsos poll released last week showed Americans were divided on tariffs, with 54% opposing new duties on imported goods and 43% in support, with Democrats more opposed and Republicans more supportive.
INVESTORS LOOK AHEAD
Investors were considering the effects of additional tariffs promised by Trump, including those related to oil and gas, as well as steel, aluminum, semiconductor chips and pharmaceuticals.
A European Commission spokesperson said the EU "would respond firmly to any trading partner that unfairly or arbitrarily imposes tariffs on EU goods."
Europe's biggest carmaker, Volkswagen (VOWG_p.DE), said it was counting on talks to avoid trade conflict.
Automakers would be particularly hard hit, with new tariffs on vehicles built in Canada and Mexico burdening a vast regional supply chain where parts can cross borders several times before final assembly.
Trump imposed only a 10% duty on energy products from Canada after oil refiners and Midwestern states raised concerns. At nearly $100 billion in 2023, imports of crude oil accounted for roughly a quarter of all U.S. imports from Canada, according to U.S. Census Bureau data.
White House officials said Canada would no longer be allowed the "de minimis" U.S. duty exemption for shipments under $800. Canada and Mexico have become conduits for shipments of fentanyl and its precursor chemicals into the U.S. in small packages that are not often inspected by customs agents, they said.
