China and Canada announced retaliatory measures on Tuesday after U.S. tariffs took effect overnight, escalating trade tensions and rattling global markets.

President Trump’s new tariffs include a 25% levy on most imports from Canada and Mexico, with an additional 10% tariff on Canadian energy exports. Tariffs on Chinese goods were increased from 10% to 20%.

Beijing responded by slapping additional tariffs of 10-15% on a variety of U.S. agricultural imports, including chicken, pork, soy and beef, starting next week, China’s finance ministry announced.

Canadian Prime Minister Justin Trudeau, meanwhile, said Ottawa would impose immediate 25% tariffs on more than $20 billion worth of U.S. imports. Tariffs on an additional $86 billion worth of products will take effect in 21 days.

“Our tariffs will remain in place until the U.S. trade action is withdrawn,” Trudeau said, adding his government was looking into non-tariff measures if the U.S. did not reverse course.

Trump defended the tariffs, arguing they would punish Canada and Mexico — the two largest trade partners to the U.S.— for fentanyl trafficking. He also said the move would encourage car manufacturers and other businesses to move their production to the United States.

“I would just say this to people in Canada or Mexico: if they’re going to build car plants, the people that are doing them are much better off building here, because we have the market where they sell the most,” Trump told reporters at the White House.

Markets drop amid fears of a trade war

Asian markets tumbled shortly after the tariffs took effect. Japan’s Nikkei index dropped by more than 2%, while Hong Kong’s Hang Seng was down by 1.5%.

On Wall Street, U.S. stocks closed sharply lower Monday ahead of the tariff deadline. The S&P 500 fell 1.8%, the Nasdaq dropped 2.6% and the Dow decreased by 1.5%.

The market slides follow weeks of speculation over whether Trump would follow through with the tariffs. Trump had originally said the tariffs would begin on Feb. 1, but then gave leaders of the two countries a month to show they were curbing illegal immigration into the United States as well as drug trafficking.

Last week, he briefly said he would put off the tariffs until April 2 — then a day later, said that March 4 was the deadline.

During the weekend, Commerce Secretary Howard Lutnick said that the decision on the tariff rate was still up in the air, telling Fox News that the two nations had “done a reasonable job” curbing migration but not fentanyl.

“He’s sort of thinking about right now how exactly he wants to play it with Mexico and Canada, and that is a fluid situation,” Lutnick said on Sunday.

Trump said there was no wiggle room left for talks

During an event with Taiwan Semiconductor Manufacturing Co (TSMC) Chief Executive C.C. Wei at the White House on Monday, Trump said that the 25% tariffs would go ahead.

Asked whether there was any wiggle room for the two countries to negotiate the rate, Trump said: “No room left for Mexico or for Canada.”

“The tariffs, they’re all set, they take effect tomorrow,” he said.

TSMC announced on Monday that it plans to spend $100 billion on semiconductor plants in Arizona, bringing the company’s total investments in the United States to about $165 billion.

Lutnick noted that TSMC had received a $6 billion grant from the CHIPS Act — which spurred its plans to spend $65 billion on plants in Arizona — but is now spending $100 billion because of Trump’s threat to put tariffs on semiconductor imports.