President Donald Trump delivered on his threat to hit Canada and Mexico with sweeping import levies, imposing one of the largest increases in US tariffs since the 1930s in a dramatic escalation of a trade war that stands to upend ties with major economic partners.

The new tariffs — 25% duties on most Canadian and Mexican imports and the doubling of an existing 10% charge on China to 20% — impact roughly $1.5-trillion in annual imports, an expansive move signaling to markets that the Republican president is committed to wielding import duties to obtain fresh revenue and create domestic manufacturing jobs.

Trump’s move prompted swift retaliation from Canada and China and may spur similar reprisals from Mexico — as well as potential legal challenges. It leaves uncertain the fate of a trade pact Trump negotiated with Canada and Mexico in his first term and risks further straining the US economy and rekindling still simmering inflation.

Trump’s vow to move ahead with the tariffs accelerated a sell off in US stocks on Monday, with the S&P 500 down 1.8% on the day. Losses spread to Asian equities on Tuesday. The Canadian dollar and Mexican peso slumped after Trump — who previously delayed the Canada and Mexico duties — reaffirmed his plans to go ahead with the new import taxes.

The tariffs bring American import levies to their highest average level seen since 1943, according to the Budget Lab at Yale. That would lead to as much as $2 000 in additional costs for US households. It also will mean significantly slower economic growth in the US, especially if other countries retaliate, according to a report published Monday.

The Canadian government late Monday announced it will proceed with a sweeping package of counter-tariffs against US-made products. The first stage is 25% tariffs on about C$30-billion ($20.6-billion) worth of goods from US exporters to go into effect at the same time as the US levies. A second round of tariffs at the same rate will be placed on C$125 billion of products in three weeks — a list that will include big-ticket items like cars, trucks, steel and aluminum.

“Canada will not let this unjustified decision go unanswered,” Prime Minister Justin Trudeau said in a statement late Monday. The retaliation plan is the same as the one he announced in February after Trump signed his executive order for broad tariffs.

China imposed tariffs on US exports and added 10 firms to an unreliable entity list in retaliation for the Trump administration’s new levy. Beijing said it would charge a duty as high as 15% on American goods including chicken and cotton, while soybeans will face a 10% tariff.

Trump has signaled a desire to speak with Chinese leader Xi Jinping, but they have yet to talk a month after the US president raised the possibility of a call to negotiate a deal.

Mexican President Claudia Sheinbaum on Monday said her government would await Trump’s decision before reacting with retaliatory measures.

RISKY BUSINESS

The new tariffs are a risky gambit for a president elected in part on dissatisfaction with his predecessor’s handling of the economy amid polls showing voters want Trump to do more on countering inflation.

Trump has dismissed warnings from economists that tariffs threaten to fuel price growth and will fail to bring in the revenue the president and allies have predicted as they look to assuage concerns about the cost of a tax cut package in Congress costing trillions. The move comes ahead of a prime-time address Tuesday to Congress, where Trump will lay out his second-term priorities.

The 25% tariffs taking effect apply to all imports from Canada and Mexico, except for Canadian energy which will be taxed at a 10% rate. Trump’s Canada and Mexico tariffs will also have particularly stark implications for the auto sector, an industry with supply chains that crisscross the three countries.

Trump’s administration did, however, delay the removal of a so-called “de minimis” exemption for low-cost goods until they develop a plan for collecting revenue on those imports. That means that, for now, Canadians and Mexicans can continue to ship low-cost goods across the border without a tariff.

Trump initially announced tariffs on the North American neighbors and China in February, intended to punish them for what he cast as a failure to block flows of undocumented migrants and illegal drugs, such as fentanyl, across US borders. But while a 10% levy on Chinese imports took effect last month, Trump delayed import taxes on Canada and Mexico until March 4 — giving them time to negotiate a reprieve.

Canada, despite its border accounting for a much smaller portion of fentanyl flows into the US, appointed a czar and stepped up security measures. Mexico, meanwhile, deployed troops to the US southwest border, handed over drug trafficking suspects to face US charges, and proposed matching US tariffs on China. Neither strategy staved off the tariffs.

Markets were gripped by uncertainty over whether Trump would actually follow through on his repeated threats to upend global economic ties to counter what he casts as imbalanced trade. Trump has indicated more tariffs are to come, including in April reciprocal tariffs on all US trading partners that have their own levies or other barriers on American products, as well as sectoral taxes of 25% on cars, semiconductors and pharmaceuticals.

Those tariffs are also poised to be cumulative — in addition to any across-the-board tariff on a particular nation.

Trump has also said a 25% tariff is in the works for the European Union and is investigating levies on copper and lumber imports. Steel and aluminum tariffs are also set to take effect on March 12, further impacting Canada and Mexico.

Despite worries from some in his own party, opposition to Trump’s tariff moves has been largely restrained. Senator Ron Johnson, a Wisconsin Republican, said Monday he was worried supply chains disruptions could increase consumer costs.

Business groups had urged Trump to negotiate a solution rather than leveling tariffs. The National Foreign Trade Council, a pro-trade group, said Trump’s moves would be costly for companies and consumers, undermining growth.

“We encourage the Administration to work directly with our major trading partners to deescalate the situation and quickly find a path forward to rescind these tariffs and avoid a trade war,” NFTC’s vice president for global trade policy, Tiffany Smith, said in a statement.