After China, Mexico To Hit Back Against Trump's Tariffs, Raising Trade War Risks

Starting Tuesday, U.S. President Donald Trump vowed to impose a 25% tariff on imported goods from Mexico and Canada and to double tariffs on those from China to 20%.

Some GDP forecasts have turned negative, and consumer spending unexpectedly fell in January, raising concerns about economic growth. Inflation remains stubborn, with January's Consumer Price Index rising 3%, exceeding economists' expectations.

Tariffs could push prices even higher since they typically raise costs. Canada, Mexico, and China have warned they will respond with their own tariffs, increasing the risk of a trade war. If inflation stays above the Federal Reserve's 2% target, interest rates may stay high for longer than anticipated.

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On Tuesday, Mexican President Claudia Sheinbaum said there was no justification for Trump's 25% tariffs on imports from Mexico and that her government would respond with tariff and non-tariff measures.

"There is no reason, rationale or justification to support this decision that will affect our people and nations … Nobody wins with this decision,"

Mexico decided to wait until Sunday.

Bloomberg reports that the Mexican peso slumped as much as 1.5% against the U.S. dollar on Tuesday.

Mexico ETFs, iShares MSCI Mexico ETF EWW and Franklin FTSE Mexico ETF FLMX were down 2.47% and 2.73%, respectively.

Trump said Monday that Mexico, Canada, and China haven't done enough to stop fentanyl and its chemicals from reaching the U.S. In response, Sheinbaum said Mexico has worked with the U.S. on migration, security, and drug trafficking efforts.

The Mexican president dismissed the claim as "offensive, baseless, and defamatory," AP News wrote.

She then highlighted her administration's efforts against drug cartels, mentioning the seizure of over a ton of fentanyl and the shutdown of 329 meth labs. She also pointed out that Mexico recently extradited 29 cartel members to the U.S.

On Tuesday, China hit back at Trump's recent tariff hikes by placing its own tariffs on certain U.S. goods, sanctioning American companies, and planning to file a complaint with the World Trade Organization.

Beijing has imposed a 15% tax on American poultry, wheat, corn, and cotton in response to the U.S. doubling tariffs on Chinese products. A 10% tariff will also apply to soybeans, pork, beef, and other food items.

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