07:35 AM EST, 02/03/2025 (MT Newswires) -- On Tuesday, the United States will officially launch a tariff war with far-reaching economic, geopolitical and financial market ramifications, said TD.

The White House Fact Sheet behind the rationale cites the "extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl, constitutes a national emergency under the International Emergency Economic Powers Act (IEEPA)."

President Donald Trump cites using the trade position of the U.S. as leverage against countries to secure borders. In other words, these tariffs are seemingly unrelated to the U.S. trade deficit investigation underway to be completed on April 1, noted the bank.

This implies that even if one of the three targeted countries resolves this grievance, round two could quickly follow.

Paradoxically, China will be spared the brunt of the punishment with an additional 10% tariff rate from current levels, pointed out TD.

Mexico and Canada will each face a 25% tariff across all goods except for Canadian energy resources at 10%.

The lower tariff rate on Canadian energy resources is likely because the administration is sensitive to risks related to price escalation at the pumps, where it's highly observable and carries immediate impacts to household budgets, added the bank.

At 10%, there is likely a gamble that U.S. refiners could absorb some -- or all -- the impact via profit margins.

Importantly, Trump has indicated that should Canada retaliate, the U.S. can increase or expand the scope of duties, added TD.

Officially, the order takes effect at 12:01 a.m. ET on Tuesday.

Canadian provincial premiers have been responding through the weekend united and resolute, with each crafting individual retaliation measures that will continue to unfold in the days ahead. Some measures already reflect limiting provincial procurement by U.S. firms and removing the sale of U.S. alcohol, skewed to "red states" among some provinces, according to TD.

Canada's Prime Minister Justine Trudeau announced 25% tariffs on C$155 billion of U.S. goods. Of this, C$30 billion of goods will be affected on Tuesday. After 21 days, the remainder will be affected to allow Canadian companies and supply chains time to find alternatives.

Non-tariff measures are also being reviewed with provinces and territories.