CNN
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President-elect Donald Trump on Monday promised massive increases in tariffs on goods from Mexico, Canada and China starting on the first day of his term, a policy that could dramatically increase costs for American businesses and consumers.

The move, Trump said, was in retaliation for illegal immigration and “crime and drugs” coming across the border.

“On January 20th, as one of my many first executive orders, I will sign all the necessary documents to impose a 25 percent tariff on Mexico and Canada on ALL products entering the United States and their ridiculous open borders,” Trump wrote in his article Truth Social Platform. “This tariff will remain in effect until drugs, especially fentanyl, and all illegal immigrants stop this invasion of our country!”

Trump said America’s neighbors could “easily solve this long-simmering problem.”

Similarly, Trump said China would face higher tariffs on its goods – 10% above all existing tariffs – until it stops the flow of illegal drugs into the United States.

“I have had many conversations with China about the massive amounts of drugs, particularly fentanyl, being sent to the United States – but to no avail,” Trump posted on Truth Social.

The president-elect claimed in the post that Chinese officials promised him that the country would execute drug dealers caught smuggling drugs into the United States, but “never followed through.”

In response to Trump’s announcement, Chinese Embassy spokesman Liu Pengyu said that his country had communicated with the United States about counter-narcotics operations and that “the idea that China knowingly allows the flow of fentanyl precursors into the United States is completely unacceptable.” Contradicts facts and reality.”

“As for the issue of US tariffs against China, China believes that China-US economic and trade cooperation is mutually beneficial. Nobody will win a trade war or a tariff war,” Liu said in a statement to CNN.

CNN has reached out to the embassies of Mexico and Canada for comment.

If the tariffs go into effect, they could have a devastating impact on America’s supply chains and industries that rely on goods from the country’s closest trading partners.

“Tonight’s proposed measures could hit a number of strategically important U.S. industrial sectors hard, increasing the tax burden by approximately $272 billion per year, increasing the price of goods, increasing interest rates and weakening the strength of an already vulnerable fiscal sector,” said Karl Schamotta , Chief Market Strategist at Corpay Cross-Border Solutions.

Following the announcement, the Canadian dollar fell 1.2% against the U.S. dollar and the Mexican peso fell 2% against the dollar. Despite being controlled by the government, the Chinese yuan traded higher in offshore markets – over 7.6%.

Although investors believed the tariffs could ultimately strengthen the dollar, American financial markets also took a hit. The special tariffs would drastically increase the costs for Americans for everyday goods that previously crossed the border without import duties.

This stunning shift could slow economic growth, especially if inflation-weary consumers spend less in the face of higher costs.

U.S. stock futures, which were higher before Trump’s announcement, fell slightly – Dow futures fell 160 points, or 0.3%. Nasdaq futures fell 0.4% and the broader S&P 500 also lost 0.4%. US Treasury bond prices fell.

The U.S.’s largest import from Canada is oil, which reached a record 4.3 million barrels per day in July, according to the U.S. Energy Information Administration. According to the United Nations Comtrade, America also imports cars, machinery and various other goods, plastics and wood from Canada.

America gets the majority of its cars and auto parts from Mexico, which overtook China as the largest exporter to the U.S. in 2023, according to trade data released by the Commerce Department earlier this year. Mexico is also a major supplier of electronics, machinery, oil and optical equipment, and a significant amount of furniture and alcohol enters the United States from the country.

The United States also imports a significant amount of electronics from China, in addition to machinery, toys, games, sports equipment, furniture, and plastics.

During Trump’s first term, CNN reported that he imposed tariffs on about $380 billion worth of goods, applying to thousands of products made in China, including baseball caps, luggage, bicycles, televisions and sneakers. The Trump tariffs also hit foreign steel, aluminum, washing machines and solar panels.

Many U.S. imports from Canada and Mexico are exempt from tariffs under the USMCA trade deal between the three nations that Trump pushed for during his first term. It’s not clear how Trump would implement the proposed tariffs without violating the USMCA.

Trump has regularly cited the passage of the USMCA, which replaced NAFTA, as a political victory and the highlight of his presidency.

Trump campaigned on using tariffs as a cudgel against foreign countries – as he did in his first administration – to increase domestic production while increasing tax revenues to close the large revenue gaps created by his proposed tariffs tax reduction plan would arise.

Tariffs effectively serve as a tax on goods imported into the United States. Although Trump has repeatedly said that targeted foreign countries are paying the tariffs, in reality they are paid by companies that buy the imported goods — and those costs are typically passed on to American consumers. Most mainstream economists believe the tariffs will have an inflationary effect, and the Peterson Institute for International Economics estimates that Trump’s proposed tariffs would cost the typical U.S. household over $2,600 a year.

Scott Bessent, Trump’s nominee for treasury secretary, said tariffs would not contribute to inflation if implemented properly. Wall Street welcomed Bessent’s appointment as he is widely expected to phase in tariffs.

Although Bessent will be partially responsible for implementing the tariffs if confirmed by the Senate, Trump as president would have significant power to impose tariffs with the stroke of a pen, in coordination with the Commerce Secretary and the U.S. Trade Representative. That’s exactly what he did the last time he was in the White House, imposing high tariffs on goods, especially from China.

The problem with tariffs is that they often result in retaliation from target countries and trigger a trade war – which is exactly what happened during Trump’s first term. This weakened the effect of tariffs on domestic production as manufacturers’ goods became less attractive to foreign buyers.

Trump has promised significantly higher tariffs for his second term in office. Although he continues to discuss many different numbers, he has proposed a tariff of more than 60% on all Chinese goods, as well as a flat tariff of either 10% or 20% on all other imports into the US.

This story has been updated with additional context and developments.

CNN’s Matt Egan and Jack Forrest contributed to this report.