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In a surprising move just two days after implementing widespread tariffs on Canada and Mexico, President Trump decided to hold back on many of those duties on Thursday. This sudden change left investors and businesses, reliant on cross-border trade, scratching their heads.
President Trump announced that products traded under the guidelines of the U.S.-Mexico-Canada Agreement, a trade deal he inked in his first term, would be exempt from the steep 25% tariffs he had recently put in place against two of America’s biggest trade partners.
By suspending these tariffs, the President effectively withdrew many of the trade barriers he had previously justified as necessary to address issues like drug trafficking and illegal immigration into the U.S.
This reversal followed a day after he promised a temporary 30-day relief to car manufacturers, who argued that the tariffs would severely impact American automakers. However, Trump signaled this relief might be short-lived, with the promise of additional tariffs on Canadian and Mexican goods looming in April.
The erratic, on-again, off-again nature of Trump’s trade policies has unnerved stock markets and caused concerns among industries that heavily rely on trade with Canada and Mexico—markets comprising more than a quarter of U.S. imports and almost a third of exports. Following Trump’s tariff announcement, Canada hit back with taxes on $20.5 billion worth of U.S. goods, including agricultural items, while Mexico threatened its own import taxes if tensions weren’t resolved by Sunday.
Despite the tariff suspension, it did little to soothe jittery financial markets as Trump intensified the trade dispute this week. Besides Canada and Mexico, Trump slapped an additional 10% tariff on all imports from China, inciting more retaliatory actions from Beijing. Notably, Trump hasn’t eased any tariff measures on China.
Thursday saw the S&P 500 drop by 1.8%, capping a weekly decline of 3.6%, marking its worst performance since a banking crisis two years ago exposed flaws in some of the nation’s small lenders.
Addressing the nation from the White House, Trump justified his decisions as protective measures for American agriculture and the automotive industry. He stressed that the changes were purely strategic and had no market-driven motives.
“I’m not focusing on the market,” he asserted, “because long term, the United States will stand resilient with these ongoing actions. These foreign firms have taken advantage of us, unlike any past president has addressed.”
Earlier, Trump used social media to convey that after discussions with Mexico’s president, he opted to indefinitely suspend many tariffs on imports from Mexico. Yet, he indicated that a different set of levies awaited implementation on April 2.
“After my conversation with President Claudia Sheinbaum of Mexico, there’s mutual agreement not to impose tariffs on goods under the USMCA Agreement,” Trump shared on social media.
“Our cooperation continues to be robust, especially at the border for curbing illegal crossings and the halt of Fentanyl,” he added.
President Sheinbaum expressed gratitude on social media on Thursday, remarking on an excellent and respectful conversation, highlighting remarkable results from their collaboration.
Later that day, Trump also broadened the scope of his suspension to include specific imports from Canada.
Dominic LeBlanc, Canada’s finance minister, announced that in light of Trump’s latest decision, Canada would not proceed with retaliatory tariffs.
Meanwhile, Doug Ford, Ontario’s premier, criticized the suspension. “This situation with President Trump is chaotic,” he commented. “We’ve been down this road. He still threatens tariffs for April 2.”
Peter Navarro, a key trade and manufacturing advisor, linked the tariffs to combating the fatal fentanyl crisis. “What America needs is for China, Canada, and Mexico to pledge to cease this tragedy immediately,” he emphasized.
Both Canada and Mexico have taken steps to bolster border safeguards, while U.S. data reflects that Canada contributes minimally to the fentanyl influx. Unfortunately, up-to-date national statistics on fentanyl overdoses, frequently referenced by Trump officials, seem non-existent.
However, not all imports will escape tariffs. An unnamed White House insider reported that 38% of Canadian imports took advantage of USMCA preferences last year, as did about half of those from Mexico. Oil, commonly imported from Canada, traditionally did not, and so remains subject to a 10% duty.
Economists offer varying insights on the tariff suspension’s potential impact. The Peterson Institute for International Economics suggests about 15% of U.S. imports from Canada and Mexico might not qualify for preferential treatment under the USMCA.
William Jackson, of Capital Economics, contemplates about 10% of Mexican exports to the U.S. don’t fall under the trade agreement, including specific automotive and machinery exports.
“In some cases, producers find it challenging to align with regional content standards required for tax-free trade,” Mr. Jackson explained. For example, BMW imports certain vehicles from a Mexican facility, incurring a tariff rather than adhering to the USMCA terms.
U.S. automakers reportedly prompted the suspension, arguing during a Tuesday call with Trump that imposing tariffs on vehicles from Canada and Mexico would significantly raise costs, nullifying their profits.
Numerous trade sectors raised similar concerns, including the agricultural industry reliant on Canadian fertilizers and cross-border exports.
The executive order noted that potash, an essential Canadian fertilizer for U.S. farming, would be subjected to a 10% levy, not the initial 25%.
“We don’t need Canada’s trees, cars, or energy,” Trump declared Thursday. “We’re capable of self-sufficiency in many areas; with vast resources left untapped due to environmental regulations.”
Even with the tariff suspension, the economic impact of Trump’s policies may linger. He plans to impose 25% tariffs on steel and aluminum starting March 12 and declared new tariffs on auto imports and “reciprocal” taxes effective April 2, aligning U.S. tariffs with those of other nations while addressing unequal trade practices.
Some of Trump’s economic advisors argue the tariffs won’t lead to inflation, though Treasury Secretary Scott Bessent admitted Thursday that short-term price increases might occur.
“Tariffs may lead to a one-off price hike,” Bessent observed at the New York Economic Club.
Yet, Bessent, referencing Trump’s broader economic initiatives like bolstering energy output and undoing regulations, remains unworried about tariffs triggering inflation.
“Across the board, inflation isn’t a concern,” Bessent concluded.
Simon Romero and Ian Austen contributed to the report.
