President Donald Trump could roll back a portion of the tariffs he imposed on imports from Canada and Mexico as soon as Wednesday, according to Commerce Secretary Howard Lutnick.
Lutnick told Fox Business on Tuesday afternoon that Canadian and Mexican officials had been on the phone with him all day and that Trump was listening. The president is “going to work something out with them,” Lutnick said. “It’s not going to be a pause, none of that pause stuff, but somewhere in the middle will likely be the outcome.”
The announcement could come tomorrow, he added.
It’s another twist in an unfolding drama that started out the day with sharp words from Canada and Mexico after Trump’s 25% tariffs on their products kicked in.
Canadian Prime Minister Justin Trudeau said they will “not back down from a fight.”
Trudeau announced 25% tariffs on $155 billion worth of American goods: $30 billion on products immediately, and another $125 billion on American products in 21 days.
“Our tariffs will remain in place until the U.S. tariffs are withdrawn, and not a moment sooner,” he said. “There is absolutely no justification or need whatsoever” for actions that he said would first and foremost harm American families. “There are no winners in a trade war.”
Trump seemed to up the ante in a social media post after Trudeau’s morning press conference. “When he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!” Trump’s post said.
Trump is referring to a threatened reciprocal tariff that takes effect in April on imported goods from countries that have tariffs on U.S. products. This rapidly escalating trade war rhetoric is erupting after a 30-day pause. One month ago, it wasn’t clear whether Trump would follow through on his threatened tariffs. On Monday, Trump said time had run out.
Mexican President Claudia Sheinbaum said that Mexico will respond with its own tariff and non-tariff moves she will announce on Sunday.
“There is no motive, reason, or justification for this decision that will affect our peoples and nations,” she said Tuesday. “We have said in different ways: cooperation and coordination, Sí; subordination and interventionism, No.”
China has also responded to Trump slapping another 10% to existing tariffs on its products. China raised tariffs on food and other farm products, as well as adding to export restrictions on American companies. It also filed suit with the World Trade Organization.
The main concern about the tariffs is that they will drive up inflation by bolstering the cost of imported goods for consumers, which should, in theory, lead to higher interest rates and a stronger currency. But the worry has shifted to how much the tariffs might hurt growth by prompting shoppers to spend less, disrupting supply chains, and hurting U.S. exports as trade partners retaliate.
Moody’s Ratings said in a note that $3 trillion of trade is at risk because of this trade war between the U.S. and its closest trading partners. The European Union, Mexico, Canada, and China account for about 60% of US imports and exports, Moody’s said, and U.S. imports account
for about 7% of gross domestic product.
The tariffs would hit U.S. importers of consumer goods and industries that rely on imports, including auto, construction, technology, and manufacturing, Moody’s said. And American exporters of minerals and oil, transportation equipment, chemicals, electronics, and agricultural goods are vulnerable to retaliating levies.
But the situation is subject to change. Lutnick told CNBC that a report studying other countries’ trade policies will be released on April 2, after which policies could be reset again.
Trump has cited the continued flow of the drug fentanyl across the U.S. border as a justification of his tariffs on Canada, Mexico, and China. Trudeau dismissed the assertion that Canada had not done enough to stop fentanyl shipments, calling the allegations “totally false.” He said less than 1% of fentanyl and less than 1% of the illegal crossings into the U.S. come from Canada.
“These tariffs are not specifically about fentanyl,” Trudeau said. “Canadians are reasonable and we are polite, but we will not back down from a fight. Not when our country is at stake.”
Directly addressing the American people, Trudeau said: “We don’t want this. We want to work with you as a friend and ally, and we don’t want to see you hurt, either, but your government has chosen to do this to you. Your government has chosen to put American jobs at risk at the thousands of workplaces that succeed because of materials from Canada or because of consumers in Canada, or both,” and to raise the cost of groceries, gas, cars, homes, and everything in between, to harm American national security, and to impede access to abundant critical materials, energy, building materials, and fertilizers that Canada has and that the U.S. needs.
Likewise, Mexico’s Sheinbaum said “it’s inconceivable that no thought is being given to the damage it will cause to both U.S. citizens and U.S. companies as a result of the higher prices on goods produced in our country, as well as the damage it will cause by putting a stop to job creation in both countries. Nobody wins with this decision.”
Stocks fell in a continuation of Monday’s market moves. The S&P 500 ended down 1.2% after falling 1.8% on Monday.
Trudeau said Canadians are angry, but not at the American people. Still, they might choose not to vacation in Florida or other American hotspots, “and yes, we are probably going to keep booing the American anthem.”
Reflecting the words in a recent Wall Street Journal editorial, Trudeau added: “This is a very dumb thing to do.”
Some of the worst-hit companies are car makers such as Ford, General Motors, and Stellantis, as their production systems were deeply integrated with the U.S.’s neighbors after decades of enjoying unencumbered trade. Stocks related tofood production such as Deere, the tractor maker, and AGCO, which also makes machinery, took a hit as well.
The impact of the latest round of tariffs may not be as severe as feared.
“In the immediate short term, the prospect of trade retaliation will help to tarnish the U.S. dollar’s prospects,” said Tan Kai Xian, a strategist at Gavekal Research. “But in the longer run, theoretically the dollar and U.S. equities should benefit in an all-out trade war. This is because trade is a smaller share of GDP in the U.S. compared with other major economies.”
The Atlanta Federal Reserve’s GDPNow indicator, a real-time estimate of what gross domestic product growth will be in the current quarter, plunged to a 2.8% contraction. A month ago, it was indicating an almost 4% expansion.
The next target for tariffs is likely to be goods from the European Union, but other countries will also be affected. For example Japan, home to car brands Toyota and Honda, makes a lot of vehicles in Mexico to export into the U.S., too.
The decision to push ahead with the tariffs not only took markets by surprise, but it also sparked a backlash across the globe.
Mark Carney, a leading candidate to replace Trudeau as head of the Liberal Party, said in a social media post, saying “In trade, as in hockey, we will win.”
A spokesperson for China’s legislature said, “We never accept any acts of pressure or threats, and will firmly defend our sovereignty, security, and development interests.”
The EU said in a statement that it “stands firmly against protectionist measures that undermine open and fair trade.”
Even billionaire investor Warren Buffett has chimed in, saying that tariffs are an “act of war” and that the costs will ultimately be paid by U.S. consumers in the form of worse inflation. “The Tooth Fairy doesn’t pay ‘em,” he said in an interview with CBS News on Sunday.