Good morning. President Trump turned markets red overnight with fresh tariffs on Canada, Mexico and China. Today we’re covering everything to know, in plain language. First time reading? Join over 190,000 self-directed investors and sign up here.

A new trade war begins

President Donald Trump moved forward with one of his most market-moving campaign promises on Saturday, announcing across-the-board 25% tariffs on Canada and Mexico, and a 10% levy on China with the aim of curbing illegal immigration and fentanyl flows. 

“We need to protect Americans, and it is my duty as President to ensure the safety of all,” Trump wrote in a social post. 

Notably, Trump gave energy from Canada a carve out of a 10% tariff, rather than 25%. 

The White House said the tariffs will begin Tuesday and stay in place until the “crisis is alleviated.”

The executive orders include room to expand tariffs if needed.

Context and numbers

Putting China aside for a moment, Canada announced retaliatory tariffs of 25% on over $150 billion of US exports, ranging from alcohol and food to appliances.

Mexico has also said it would retaliate, though it hasn’t released any official numbers. 

Some $1.8 trillion in trade happens every year between the US, Canada and Mexico, but the dynamic heavily favors the US, which suggests any retaliation may prove moot: 

• Mexico’s exports to the US make up about 83% of its total exports per year

• Canada’s exports to the US make up about 77% of its total exports per year

• The US exports to Mexico and Canada combined make up roughly 30% of total US exports per year

In dollar terms: 

• Mexico exported $475 billion to the US in 2023

• Canada exported $418 billion to the US in 2023

• The US exports roughly $700 billion to Mexico and Canada combined each year 

The numbers look comparable at first glance. But when you take into account the size of each nation’s economy, the mismatch becomes obvious: 

• Mexico GDP: $1.8 trillion

• Canada GDP: $2.3 trillion

• US GDP: $29.7 trillion

Bloomberg calculations estimate that these orders will raise the average tariff rate in the US from 3% to 10.7%, and reduce US GDP by 1.2%.

China, for its part, remains the wild card. It has more geopolitical and economic leverage compared to Canada or Mexico.

The AI arms race (see: DeepSeek) adds additional tension between the US and China, as tariffs arrive against the backdrop of a chip-based innovation war. In 2024, the US imported over $400 billion in goods and services from China, while it exported just $130 billion. 

Best- and worst-case scenarios

From an economic and consumer perspective, lasting implications are hard to pin down. President Trump himself said there could be near-term disruption.

This weekend he also threatened to impose 100% tariffs on BRICS nations, which could roil currency markets across dozens of countries. 

The chart below illustrates how currencies across the US, Canada, Mexico and China have moved since election day. Late Sunday, the US dollar spiked near its highest level in a year.

In any case, Goldman Sachs, for one, told clients Sunday it expects these tariffs to be short-lived as countries strike a deal. 

Best-case scenario: 

• Inflation doesn’t rebound long-term: The initial bump in consumer prices subsides quickly as re-shoring leads to greatest domestic supply and productivity. Then, increased US production and less reliance on overseas supply chains reduces supply-driven inflation risks.

• Domestic boom for the US: Tariffs will make imported goods more expensive, so consumers and businesses overwhelmingly turn to made-in-the-USA alternatives. US production and jobs explode, and a surge of investment pours into US manufacturing.

• Reduced trade deficit: Higher import costs lead to fewer imported goods, strengthening the US dollar and elevating the country’s economic and geopolitical standing on the world stage.

• Improved national security: The US strengthens its borders, minimizes illicit drug flows, and reduces reliance on foreign suppliers in key industries related to technology, AI, and defense. 

Worst-case scenario: 

• Inflation returns: Businesses have no choice but to pass higher import costs onto consumers and everyday essentials get more expensive. The Fed, in turn, is forced to keep rates higher for longer, dragging on economic growth.

• Retaliatory tariffs hurt the US: Canada, Mexico, and China levy US goods in key industries like technology, agriculture, energy, and manufacturing. That leads to weaker business and earnings for US companies, layoffs, and a loss in market share.

• Supply chain disruptions: American businesses with overseas supply chains face higher costs, delays and logistical nightmares leading to weaker business, reduced competitiveness, and a risk of relocating operations outside the US.

• Global economic downturn: Tariffs and failed trade negotiations send the US and its trade partners into a recession, leading to a sell-off in financial markets and rattled investor confidence.

For what it’s worth, last week JPMorgan CEO Jamie Dimon called tariffs an “economic weapon.”

“I would put it in perspective,” he said. “If it’s a little inflationary but it’s good for national security, so be it. Get over it.”

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Elsewhere:

📉 Stock futures spiraled lower overnight. Each of the three US benchmarks point to sharp losses to open Monday’s trading session. Meanwhile, bitcoin dropped below $92,000, more than 12% lower than its price on Friday. (Yahoo Finance)

📊Everyday items could more expensive soon. The short-term impact of tariffs could push prices for vegetables, fruits, and cars higher. One estimate from ING economists suggests the potential economic hit could work out to about $835 per person in a worst-case scenario. (Bloomberg)

🇷🇺Moscow has $2 billion stuck at JPMorgan. A few months after invading Ukraine, Russia sent a series of huge payments to Turkey. Those got flagged by the Justice Department, since they were handled by US banks, and investigators found that they were tied to a nuclear-power plant project in Turkey. (WSJ)

Rapid-fire: 

• China’s factory activity slowed in January and a key index came in below expectations (CNBC)

• Nvidia looks overvalued compared to this “dirt cheap” AI stock that a top investor says could surge 70% in 2025 (Best Ideas Club)

• Canada is launching a program to relieve businesses from tariff pressures (Reuters)

• Wall Street experts’ reactions to tariffs have been a mixed bag so far (Yahoo Finance)

• Billionaire Bill Ackman announced his hedge fund will move out of Delaware and reincorporate in Nevada, following Elon Musk (Business Insider)

• The Texas Stock Exchange startup has asked the SEC to clear it for a 2026 launch (WSJ)

• New accounting rules create billions in profits for bitcoin treasury companies (Pomp Letter)

Last thing:

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