Trump is leveraging tariffs. Is he ready for potential fallout? Are consumers? Here’s what to know

ATLANTA (AP) — President Donald Trump has taken executive action to impose or threaten new tariffs on imports from Canada, Mexico and China.

The moves fulfill certain campaign promises but also have roiled stock markets and supply chains, while testing relations with the country’s North American neighbors and, in China’s case, the world’s second-largest economy.

But Trump is also declaring initial victories as Mexican and Canadian leaders agreed to more cooperation on border control.

Unlike during the 2024 campaign, when Trump billed his economic agenda as guaranteed to reduce the cost of living for Americans, the Republican president now is acknowledging what many economists have long forecasted: that his approach could yield higher prices and lower supplies across a roiled U.S. market.

Here are things to know about Trump’s actions, the counters from U.S. trading partners and what it means for American consumers:

The moves involve the three largest U.S. trading partners

Trump initially declared an economic emergency to place duties of 10% on all imports from China and 25% on imports from Mexico and Canada. Energy imported from Canada, including oil, natural gas and electricity, would be taxed at 10%. The targeted countries are the United States’ three largest trading partners.

The levies on China were still slated to go into effect Tuesday.

But on Monday, Trump and the leaders of Mexico and Canada announced deals to forestall a potential trade war for 30 days as both U.S. neighbors agreed to placate the American president by boosting efforts to boost border security and combat drug trafficking. In Mexico, President Claudia Sheinbaum committed specifically to deploy 10,000 national guard members to the U.S.-Mexico border.

The tariffs Trump proposed would reach across the U.S. market. To name a few: oil and lumber from Canada and plastics, textiles and computer chips from China. Tariffs on Mexico could add to the cost of produce, clothing, liquor and auto parts produced there.

Trump’s original order contained no mechanism for granting exceptions to U.S. importers.

Underscoring the potential effects if permanent deals are not reached, Canada provides more than 4.3 million barrels of oil a day to the United States. The U.S. tends to consume about 20 million barrels a day, according to the U.S. Energy Information Administration. It has been producing domestically about 13.2 million barrels daily.

Trump says these levies are about immigration and drugs — downplaying economics

The president talked often as a candidate — and for decades before he entered politics — about U.S. trade deficits. He blasted international trade deals and bemoaned the steady flow of manufacturing jobs out of the U.S. to other countries. But he has framed his latest actions as leverage on immigration and drugs. Trump is blaming the three U.S. partners for not doing enough to stop the flow of fentanyl into U.S. markets. He blames Mexico and, to a lesser extent, Canada for an inflow of migrants across U.S. borders.

“It is my duty as president to ensure the safety of all,” Trump said on social media after his initial weekend announcement.

Canada, China and Mexico reacted swiftly

Trump’s order included a promise to escalate the tariffs if U.S. trading partners answered with their own. That threat did not prevent a swift response.

Before they talked to Trump on Monday, Sheinbaum had ordered retaliatory tariffs, and Canadian Prime Minister Justin Trudeau said he would put matching 25% tariffs on up to $155 billion in U.S. imports.

Trudeau had urged Canadians to “choose Canadian products” when shopping, effectively urging a boycott of U.S. goods. Locally, multiple premiers of Canadian provinces said they would be removing American alcohol brands from government store shelves.

On Tuesday, China’s Ministry of Commerce announced it was implementing counter tariffs against the U.S. on multiple products — a 15% tariff on coal and liquified natural gas products, as well as a 10% tariff on crude oil, agricultural machinery and large-displacement cars.

Also Tuesday, China’s State Administration for Market Regulation said it’s investigating Google on suspicion of violating antitrust laws.

Earlier, the ministry had said it would file a complaint with the World Trade Organization for the “wrongful practices of the U.S.” — though the WTO appeals process has been stymied in recent years as multiple U.S. administrations blocked appointments of judges.

A WTO spokesperson said Monday that no member countries had formally sought to take any action against the U.S over the tariff announcements.

Meanwhile, the short-term detente between Trump and neighboring counterparts leaders may not hold.

Consumers will see the effects, even if businesses pay the tariffs

End-line consumers don’t pay tariffs directly. It’s whatever company — a foreign-based exporter or a U.S.-based importer — that is transporting goods across the border. But that adds to the overall cost of getting goods to their final retail stop, and each player in the process is certain to increase its prices as it encounters new border duties.

Gregory Daco, chief economist at the tax and consulting firm EY, calculates the tariffs would increase inflation, which was running at a 2.9% annual rate in December, by 0.4 percentage points this year. Daco projects the U.S. economy, which grew 2.8% last year, would fall by 1.5% this year and 2.1% in 2026.

The Budget Lab at Yale University estimates Trump’s tariffs would cost the average American household $1,000 to $1,200 in annual purchasing power.

Those estimates were made presuming the tariffs include Mexico and Canada.

The effects reach even to products billed as “Made in the U.S.A.” Sometimes that label means only that a product is assembled or otherwise finished in a U.S. facility but still includes raw materials, parts or packaging from elsewhere.

And as Trump often said during the campaign, energy costs — which become transportation costs in the supply chain — also drive consumer pricing. Given Canada’s share of the U.S. energy supply, tariffs at the northern U.S. border would increase gas prices, especially in the Midwest, where so much Canadian crude oil is refined.

Markets are roiled even as Trump negotiates with foreign leaders

Trump called his Monday morning talk with Sheinbaum a “very friendly conversation” — continuing his framing of the overall issue as one of negotiations and leverage. Trudeau said Monday afternoon that Canada and the U.S. would “work together.”

Certainly, it could be that most of Trump’s tariffs never go into effect or are short-lived. Yet the mere threat of the levies — which the president has made clear will not go away while he’s in office — can upset international markets and frustrate businesses throughout the international supply chain.

Business leaders advocate broadly for lower taxes and less government regulation. But what they often prize, first and foremost, is predictability — having as few unknown variables as possible so they can better predict their revenues and expenses.

U.S. stock markets were volatile during Monday’s trading. Around the U.S., business have been bracing have been bracing for a rocky period. And in Canada, elected officials, business leaders and rank-in-file citizens have expressed a sense of betrayal that is not necessarily soothed by a 30-day pause and could still affect bottom lines in U.S.-Canada commerce.

Trump has changed his tune on the consequences for consumers

Candidate Trump made sweeping, fantastical promises about the U.S. economy.

He promised to lower grocery prices “immediately” — sometimes he said “on Day 1” — and cut utility bills in half within a year of taking office. He said he’d “quickly” address housing shortages and rising costs of rent and new-home construction. He repeatedly hammered the Biden administration as a failure because of inflation and invited the votes of Americans frustrated over a higher cost of living.

Vice President JD Vance, in an interview on Fox News Channel’s “Sunday Morning Futures,” maintained that Trump would deliver “more take-home pay” for U.S. workers.

Now, Trump is backing off such claims.

“Will there be some pain? Yes, maybe (and maybe not),” Trump wrote Sunday morning on social media. “But we will make America great again, and it will all be worth the price that must be paid.”

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Associated Press writers Josh Boak in Palm Beach, Fla., Rob Gillies in Toronto, and Jamey Keaten in Geneva contributed reporting.

Bill Barrow, The Associated Press