How a Three-Way Trade War With China, Mexico, and Canada Could Weaken the US

Washington: The United States has entered a deepening trade dispute with China, with both countries imposing tariffs on each other’s goods, raising concerns over a prolonged and costly trade war. What began as a bilateral conflict is now showing signs of expanding, with potential economic ramifications involving two of the US’s closest trading partners—Mexico and Canada.

The situation escalated when the US imposed a 10% tariff on all Chinese imports, triggering swift retaliation from China. In response, Beijing announced tariffs ranging between 10% and 15% on select American products, including crude oil, liquefied natural gas, coal, agricultural machinery, and luxury vehicles. The trade measures also saw China adding two major American companies—Illumina and PVH Group, the parent company of Calvin Klein and Tommy Hilfiger—to its unreliable entities list, effectively restricting their operations in the Chinese market.

Economic Fallout and Rising Prices in the US

Trade experts warn that the escalating tariff battle could have immediate consequences for American consumers and businesses. The increased cost of imported goods may drive up prices on everyday items such as electronics, clothing, and household products. Additionally, US-based manufacturers that rely on imported raw materials—including plastics, rubber, and chemicals—could face higher production costs, forcing them to either absorb the losses or pass them on to consumers.

Clark Packard, a research fellow at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, noted that if negotiations fail to de-escalate tensions, the impact on the economy could be significant. “If both sides continue imposing retaliatory tariffs without reaching a compromise, we could see a sharp decline in trade activity, resulting in financial strain across industries,” he told CNN.

Risk of a Multi-Nation Trade War

While the US-China trade tensions dominate headlines, economic analysts are also keeping a close eye on the potential spillover effects on Mexico and Canada. Both nations maintain extensive trade ties with the US, and any disruptions in supply chains could severely impact businesses operating across North America.

A report by Citibank suggests that if the trade dispute extends beyond China and involves punitive tariffs on goods from Mexico and Canada, the US economy could contract by 0.8% in 2025 and 1.1% in 2026. The report further indicates that China may weather the tariff war better than the US, despite the restrictions imposed by Washington. However, the economies of Mexico and Canada could suffer more severe downturns due to their heavy reliance on US trade.

What Lies Ahead?

With no immediate resolution in sight, the Biden administration faces mounting pressure to prevent the trade dispute from spiraling into a broader economic crisis. While some experts believe a negotiated settlement is still possible, others warn that continued escalation could damage the US economy in the long run.

As trade negotiations unfold, businesses and consumers alike are bracing for potential price increases, market volatility, and economic uncertainty. Whether the US can strike a balance between protecting domestic industries and maintaining stable global trade relations remains to be seen.