Donald Trump’s tariffs: What’s going on and what does it all mean?
Donald Trump has announced sweeping tariffs on Mexico, Canada and China, kicking off a trade war that will affect the globe.
Here we look at the tariffs and what they all mean for the world:
What did Trump announce?
On Sunday the US president said goods from Mexico and Canada will face 25% tariffs, while 10% taxes will be implemented on imports from China.
Canadian energy, including oil, natural gas and electricity, will be taxed at a 10% rate.
Trade war latest: Follow live updates
The levies were expected to all take effect on Tuesday, with Mexico and Canada both announcing counter-tariffs of their own in response.
However, on Monday both Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau said the implementation of tariffs would be paused for a month after they had calls with Mr Trump.
But Mr Trump has also threatened to go further, saying tariffs on the European Union would be implemented “pretty soon”.
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Trump’s proposed tariffs
When questioned about the UK, the president said Britain was “out of line” when it came to trade but he thought the situation could be “worked out” without the use of tariffs.
What are tariffs, and how do they work?
Put simply, tariffs are taxes on goods brought in from other countries.
By raising the price of imports, tariffs aim to protect domestic manufacturers by making locally made goods cheaper.
Contrary to what Mr Trump has said, it is not foreign countries that pay tariffs, but the importing companies that buy the goods.
For example, American businesses like Walmart or Target pay tariffs directly to the US treasury.
In the US, these tariffs are collected by customs and border protection agents, who are stationed at 328 ports of entry across the country.
Mr Trump’s proposed tariffs
To compensate for tariffs, companies then put up their prices, so customers end up paying more for goods.
Tariffs can also damage foreign countries as it makes their products pricier and harder to sell.
This can lead to them cutting prices (and sacrificing profits) to offset levies and maintain their market share in the US.
Why is Trump doing this?
Mr Trump has argued imposing higher levies will help reduce illegal migration and the smuggling of the synthetic opioid fentanyl to the US.
On Mexico, the US leader claimed drug traffickers and the country’s government “have an intolerable alliance” that in turn impacts national security.
He further claimed Mexican drug cartels are operating in Canada.
On China, he said the country’s government provides a “safe haven” for criminal organisations.
He has also pledged to use tariffs to boost domestic manufacturing.
“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.
His aim appears to be to force governments in those countries to work much harder to prevent what he calls illegal migration and the smuggling of the deadly drug fentanyl – as appears to have been agreed by Mexico. But, even if the countries do not do what America wants, it will still potentially benefit firms that produce goods in the US.
What could the consequences be?
Mexico and Canada are two of America’s largest trading partners, with the tariffs upending decades-old trade relationships.
Goods that could be affected most by the incoming tariffs include fruit and veg, petrol and oil, cars and vehicle parts and electronic goods.
New analysis by the Budget Lab at Yale University found the average US household would lose the equivalent of $1,170 US dollars (£944) in income from the tariffs.
Read more: This is how US consumers will be affected
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Why Trump’s tariffs could cost you
The research also found economic growth would slow and inflation would worsen, as the tariffs forced up prices.
Immediate consequences were felt on Monday morning, as shares on Asian markets took a tumble.
Japan’s Nikkei opened down 2.9% while Australia’s benchmark – often a proxy trade for Chinese markets – fell 1.8%. Stocks in Hong Kong, which include listings of Chinese companies, fell 1.1%.
UK stocks were also significantly down, with the benchmark FTSE 100 index – containing the most valuable companies on the London Stock Exchange – dropped more than 1.3% on the open.
In Europe, stock markets opened sharply lower while the euro slid 1.3%. The Europe-wide index of companies, the Stoxx 600 dropped as much as 1.5%.
While Mexico’s peso hit its lowest in nearly three years.
‘Very scary path’
Sky News’ data and economics editor Ed Conway said the long-term consequences of a trade war is “everyone gets poorer”, which is what happened to the world before World War Two.
“As countries get poorer, they get frustrated and you get more nationalism,” Conway said, speaking on Friday’s Sky News Daily podcast.
“This is exactly what happened in the 1930s, and the world ended up at war with each other. It is a very, very scary path, and yes, we are basically on a potential of that path.”
However, Conway added one positive of Mr Trump’s tariffs could be highlighting “massive imbalances” within the global economy.
He said Mr Trump may be able to shift the conversation to problems “economists don’t want to talk about”.
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“At the moment, we have a dysfunctional global economy,” he explained.
“You have got massive imbalances like trade deficits [when a country’s imports exceeds the value of its exports] and trade surpluses [when a country’s exports exceeds the cost of its imports].
“There might well be a better way of everyone getting together and having a conversation and working out how to align their affairs, so we don’t have these imbalances in the future.
“And tariffs help to get you to this point.”
How has the world reacted?
Canadian Prime Minister Justin Trudeau reacted strongly against Mr Trump’s tariffs, saying his country would impose 25% tariffs on $155bn Canadian dollars (£85.9bn) of US goods in response.
He added the move would split the two countries apart, and urged Canadians to choose domestic products rather than American ones.
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Tariffs against Canada ‘will put US jobs at risk’
Mexican President Ms Sheinbaum posted on X on Sunday to say she had ordered her economy minister to implement tariff and non-tariff measures to defend Mexico’s interests.
She said her government “categorically rejects” the claim it has “alliances with criminal organisations” and called on the White House to “fight the sale of drugs on the streets of their major cities”.
A day later, she posted saying she and Mr Trump had a “good conversation” and “reached a series of agreements”.
These agreements include Mexico sending 10,000 troops to the border to “prevent drug trafficking from Mexico to the United States, particularly fentanyl”.
Mr Trump responded to the agreement with Ms Sheinbaum, saying negotiations between the two will be ongoing to try and achieve a “deal”.
Meanwhile, China has retaliated by imposing 10% tariffs on American crude oil, agricultural machinery, large-displacement cars and pickup trucks.
There will also be 15% tariffs on coal and liquefied natural gas, as well as an investigation into Google.
China also said it is imposing export controls on rare earth metals such as tungsten, tellurium, ruthenium, molybdenum and ruthenium-related items – the country controls much of the world’s supply of such metals, which are critical for the transition to clean energy.
They will not come into effect until Monday 10 February, however.
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Mexico responds to Trump’s tariffs
A spokesperson for the UK government reiterated that the US is an “indispensable ally” and one of the country’s “closest trading partners”.
They added that the trading relationship was “fair and balanced”, after Mr Trump criticised the UK, saying it was “out of line”.
European Union (EU) leaders have also taken a strong stance against looming US tariffs.
Kaja Kallas, the chief of foreign policy for the bloc, said there were no winners in a trade war, and if the US and Europe started one “then the one laughing on the side is China”.
German Chancellor Olaf Scholz added that the EU is strong enough to “respond to tariffs with our own tariffs”, while French President Emmanuel Macron said declarations by the US were pushing Europe to be “stronger and more united”.
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EU can react with its own tariffs
What’s the history of trade wars?
Imposing tariffs is not new to Mr Trump, or the US for that matter.
During his first term in the White House, he imposed higher levies on China and Vietnam.
In 2018, he imposed 25% tariffs on imported steel and 10% on imported aluminium from most countries, a response to what he said was the unfair impact of Chinese steel driving down prices and negatively affecting the US steel industry.
China then hit back with retaliatory tariffs on US imports, including 15% on 120 American products such as fruits, nuts, wine and steel pipes and a 25% tariff on US pork and recycled aluminium.
Before that, Democrat Jimmy Carter went so far as to completely ban the sale of wheat to Russia, which remained in effect until Ronald Reagan ended it in 1981.
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In 2019, Mr Trump also used the threat of tariffs as leverage to persuade Mexico to crack down on migrants crossing Mexican territory on their way to the US.
A study by economists at the Massachusetts Institute of Technology, the University of Zurich, Harvard and the World Bank concluded Mr Trump’s tariffs the first time around failed to restore jobs to the American heartland.
The tariffs “neither raised nor lowered US employment” when they were supposed to protect jobs, according to Sky News’ US partner network NBC News.
Brazil was “a bit surprised” Britain hasn’t contributed to a new investment fund to protect tropical forests, despite having helped to design it, a senior official has told Sky News.
The Amazon nation has used its role as host of the COP30 climate talks to tout its new scheme, which it drew up with the help of countries including the UK and Indonesia.
With Britain’s budget day looming, Prime Minister Sir Keir Starmer decided against chipping in when he visited the Amazonian city of Belem this month.
The news came out the day before Brazil was about to launch it.
“The Brazilians were livid” about the timing, one source told Sky News.
Lush rainforest and waterways in the Brazilian Amazon
A waterfall in Kayapo territory in Brazil
Garo Batmanian, director-general of the Brazilian Forestry Service and coordinator of the new scheme, said: “We were expecting [Britain to pay in] because the UK was the very first one to support us.”
The so-called Tropical Forests Forever Facility (TFFF) was drawn up with the help of “very bright people from the UK”, according to Mr Batmanian.
“So we are a bit surprised, but we expect that once internal situations get better, hopefully they will come through,” he added.
The UK’s climate envoy, Rachel Kyte, told Sky News: “The PM agreed the decision was about not doing it now, as opposed to not ever.
“We will look at the TFFF after the budget and are carefully tracking how others are investing.”
Forest growing back from a fire (bottom left) and deforestation alongside healthy sections of Amazon rainforest
The fund has been hailed as a breakthrough – if Brazil can get if off the ground.
Paul Polman, former Unilever boss and now co-vice chair of Planetary Guardians, said it could be the “first forest-finance plan big enough to change the game”.
Why do tropical forests need help?
At their best, tropical forests like the Amazon and the Congo Basin provide food, rainfall and clean air for millions of people around the world.
They soak up carbon dioxide – the main driver of climate change – providing a cooling effect on a heating planet.
But they are being nibbled away at by extractive industries like oil, logging, soy and gold.
Parts of the Amazon rainforest already emit more carbon dioxide than they store.
Other pockets are expected to collapse in the next few decades, meaning they’d no longer be rainforests at all.
Read more from COP30:
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Greenpeace says deforested land could be better used, which would save the need for more land to be cleared
Cristiane Mazzetti, senior forest campaigner at Greenpeace Brazil, said: “Science is saying we need to immediately stop deforestation and start restoring what was once lost.
“And in Brazil, we already have enough open land that could be better used for agricultural expansion… There is no need [to open up] new areas.”
Can Brazil’s new investment fund save the world’s rainforests?
For decades, forests have been worth more dead than alive.
Successive attempts to save them have fallen flat because they’ve not been able to flip the economics in favour of conservation, or ensure a long-term stream of cash.
Brazil hopes the TFFF, if it launches, would make forests worth more standing than cut down, and pay out to countries and communities making that happen.
Mining is a lucrative industry in the Amazon. Pic: Reuters
“We don’t pay only for carbon, we are paying for a hectare of standing forest. The more forests you have, the more you are paid,” said Mr Batmanian.
The other “innovation” is to stop relying on aid donations, he said.
“There is a lot of demand for overseas development assistance. It’s normal to have that. We have a lot of crisis, pandemics, epidemics out there.”
Instead, the TFFF is an investment fund that would compete with other commercial propositions.
Mr Polman said: “This isn’t charity, it’s smart economic infrastructure to protect the Amazon and keep our planet safe.”
How does the TFFF raise money?
The idea is to raise a first tranche of cash from governments that can de-risk the fund for private investors.
Every $1 invested by governments could attract a further $4 of private cash.
The TFFF would then be able to take a higher amount of risk to raise above-market returns, Brazil hopes.
That means it could generate enough cash to pay competitive returns to investors and payments to the eligible countries and communities keeping their tropical trees upright.
At least 20% of the payments has been earmarked for indigenous communities, widely regarded as the best stewards of the land. Many, but not all, have welcomed the idea.
Will the TFFF work?
The proposal needs at least $10-25bn of government money to get off the ground.
So far it has raised $5.5bn from the likes of Norway, France, and Indonesia. And the World Bank has agreed to host it, signalling strong credibility.
But it’s a hard task to generate enough money to compete with lucrative industries like gold and oil, many of which governments already invest in.
Dr Andreza Aruska de Souza Santos, director, Brazil Institute, King’s College London
Dr Andreza Aruska de Souza Santos, director of King’s College London’s Brazil Institute, said TFFF has the potential to make it “very financially viable to have a forest as a forest”.
“But the problem is that TFFF would need to compete with these very profitable industries… because you need to capture as much money from governments, from investors.
“And so far it’s not quite balancing the competitiveness of other sectors that are potentially harmful for forests.”
Hot, humid, loud and proud: the climate protest in the city of Belem was the embodiment of the Amazonian rainforest that surrounds it.
Hawkers brought carts selling bananas, mangoes and coconuts – while demonstrators bore umbrellas, hats and fans to shelter from the scorching tropical sun.
After a week of dreary negotiations at the COP30 climate talks, the streets were alive with the drumming of maracatu music and dancing to local carimbo rhythms on Saturday.
It was a carnival atmosphere designed to elevate sober issues.
The climate protest in the city of Belem
Among those out on the streets were Kayapo people, an indigenous community living across the states of Para and Mato Grosso – the latter at the frontier of soy expansion in the Brazilian Amazon.
They are fighting local infrastructure projects like the new Ferrograo railway that will transport soy through their homeland.
The soy industry raises much-needed cash for Brazil’s economy – its second biggest export – but the kayapo say they do not get a slice of the benefit.
The climate protest
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Uti, a Kayapo community leader, said: “We do not accept the construction of the Ferrograo and some other projects.
“We Kayapo do not accept any of this being built on indigenous land.”
Many Brazilian indigenous and community groups here want legal recognition of the rights to their land – and on Friday, the Brazilian government agreed to designate two more territories to the Mundurucu people.
It’s a Brazilian lens on global issues – indigenous peoples are widely regarded as the best stewards of the land, but rarely rewarded for their efforts.
In fact, it is often a terrible opposite: grandmother Julia Chunil Catricura had been fighting to stay on Mapuche land in southern Chile, but disappeared earlier this year when she went out for a walk.
Lefimilla Catalina, also Mapuche, said she’s travelled two days to be here in Belem to raise the case of Julia, and to forge alliances with other groups.
The protest in the city of Belem
“At least [COP30] makes it visible” to the world that people are “facing conflicts” on their land, she said.
She added: “COP offers a tiny space [for indigenous people], and we want to be more involved.
“We want to have more influence, and that’s why we believe we have to take ownership of these spaces, we can’t stay out of it.”
They are joined by climate protesters from around the world in an effort to hold governments’ feet to the fire.
Louise Hutchins, convener of Make Polluters Pay Coalition International, said: “We’re here to say to governments they need to make the oil and gas companies pay up for the climate destruction – they’ve made billions in profits every day for the last 50 years.”
After three years of COPs with no protests – the UAE, Egypt, and Azerbaijan do not look kindly on people taking to the streets – this year demonstrators have defined the look, the tone and the soundtrack of the COP30 climate talks – and Saturday was no different.
Whether that will translate into anything more ambitious to come out of COP30 remains to be seen, with another week of negotiations still to go.
For now, the protests in Belem reflect the chaos, the mess and the beauty of Brazil, the COP process, and the rest of the world beyond.
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