US President Donald Trump has announced sweeping new tariffs on all goods imported from America’s three largest trading partners, China, Mexico and Canada.

Trump said the US would impose tariffs beginning on Tuesday of 25% on Canada and Mexico, and 10% on China. Canadian energy faces a lower 10% tariff.

He had threatened to impose the import taxes if the three countries did not address his concerns about illegal immigration and drug trafficking.

Both Canada and Mexico said they are preparing retaliatory tariffs of their own.

Trump has indicated he is ready to escalate the duties if the countries retaliate.

Together, China, Mexico and Canada accounted for more than 40% of imports into the US last year.

“Today’s tariff announcement is necessary to hold China, Mexico, and Canada accountable for their promises to halt the flood of poisonous drugs into the United States,” the White House said in a statement on X on Saturday.

Trump posted on his Truth Social platform: “This was done through the International Emergency Economic Powers Act (IEEPA) because of the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl.”

A tariff is a domestic tax levied on goods as they enter the country, proportional to the value of the import. They are a central part of Trump’s economic vision.

He sees them as a way of growing the US economy, protecting jobs and raising tax revenue – and in this case, pushing for policy action from allies.

In her response, Mexican President Claudia Sheinbaum called allegations that the Mexican government had alliances with criminal organisations “slander”.

The White House, in its announcement, accused Mexico’s government of having “an intolerable alliance” with Mexican drug trafficking organisations.

In a statement, Sheinbaum called on the US to do more to clamp down on the illegal flow of guns south to arm the cartels.

Her country is willing to work with the US, she said. “Problems are not resolved by imposing tariffs, but by talking.”

She has instructed her economy minister to respond with tariff and non-tariff measures. They are expected to include retaliatory tariffs of 25% on US goods.

Canadian Prime Minister Justin Trudeau said his country will also respond.

“We don’t want to be here, we didn’t ask for this,” he said in a news conference late on Saturday.

“But we will not back down in standing up for Canadians.”

His government will impose 25% tariffs on $155bn worth of American goods – $30bn will come into force on Tuesday and another $125bn in 21 days.

Targeted items include American beer, wine, bourbon, fruits and fruit juices, vegetables, perfumes, clothing and shoes, as well as household appliances, sporting goods and furniture. Lumber and plastics will also face levies.

Non-tariff measures being considered are related to critical minerals and procurement, although Trudeau did not offer more detail.

The prime minister pushed back on the suggestion the shared border posed a security concern, saying less than 1% of fentanyl going into the United States comes from Canada.

In a bid to avoid the tariffs altogether, Ottawa had promised to implement C$1.3bn ($900m; £700m) of new security measures along its US border.

“Tariffs are not the best way we can work together to save lives,” Trudeau said.

He also said he had not spoken to Trump since the inauguration, but would keep lines open with US counterparts.

China said in a statement that it is strongly dissatisfied with the levies and “firmly opposes” them.

It added that it would file a lawsuit with the World Trade Organization against the US for its “wrongful practice” and would take countermeasures to “safeguard its own rights and interests”.

China’s vice-premier Ding Xuexiang told the World Economic Forum in Davos, Switzerland, last month that his country was looking for a “win-win” solution to trade tensions and wanted to expand its imports.

Canada, Mexico and the US have deeply integrated economies, with an estimated $2bn (£1.6bn) worth of manufactured goods crossing the borders daily.

Economists say the tariffs and subsequent retaliation could raise prices on a wide range of products, from cars, lumber, and steel to food like frozen French fries, avocados, and tomatoes, to alcohol.

The auto sector could be especially hard hit. Auto parts cross the three borders multiple times before a final vehicle is assembled. TD Economics suggest the average US car price could increase by around $3,000.

A January report by the Peterson Institute for International Economics suggested blanket 25% tariffs on Canada and Mexico would slow growth and accelerate inflation in all three countries.

On Friday, Trump acknowledged there could be “some temporary, short-term disruption” from the tariffs.

The Canadian Chamber of Commerce released a statement saying tariffs will have “immediate and direct consequences on Canadian and American livelihoods” and will “drastically increase the cost of everything for everyone”.

US industry groups have also raised alarm bells.

The National Homebuilders Association said the levies could increase housing costs.

The Farmers for Free Trade said, with many US farmers already struggling, “adding tariffs to the mix would only exacerbate the situation across much of rural America”.

The US Retail Industry Leaders Association, which includes big names such as Home Depot, Target and Walgreens among its more than 200 members, expressed hope tariffs could still be averted.

The White House, explaining on Saturday why it was targeting its top trading partners, said Mexican cartels were responsible for trafficking fentanyl, methamphetamine and other drugs.

It said tariffs on Canada would remain until it “co-operates with the US against drug traffickers and on border security”.

Lastly, it said “China plays the central role in the fentanyl crisis” with exports of the lethal synthetic painkiller.

Both the northern and southern US borders have reported drug seizures, though amounts at the border with Canada are considerably lower than those with Mexico, according to official data,

US border agents seized 43lbs (19.5kg) of fentanyl at the northern border between October 2023 and last September, compared to more than 21,000lbs (9,525.4kg) at the southern border.

Still, recent reports from Canadian intelligence agencies suggest a growing number of transnational organised crime groups are manufacturing drugs in Canada.

Ashley Davis, a Republican lobbyist for businesses, who represents major US companies, including Walmart and Boeing, and has been involved in discussions about tariffs, told the BBC’s World Business Report she thinks Trump will pull back on the tariffs in North America if he can point to progress on the issues he has raised as complaints – especially immigration.

“You have to remember – the border and China are the two biggest issues that Americans voted him on in the elections in November. Anything he can do to claim wins on that, I think he’s going to do,” she said.