US backtracks on Canada-Mexico tariffs in latest sharp shift on trade
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Donald Trump’s administration has backtracked further from its threat to impose sweeping 25 per cent tariffs on Mexico and Canada, in a major climbdown from its aggressive trade agenda.
In the second U-turn in two days, commerce secretary Howard Lutnick said all goods that met the rules of a 2020 free trade deal would probably be granted a one-month reprieve from the duties.
Lutnick told CNBC “it was likely” the month-long exemption would cover all goods and services compliant with the US-Mexico-Canada Agreement, which Trump’s previous administration negotiated and which covers most commerce between the three countries.
On Wednesday Trump had said carmakers compliant with the USMCA would be granted a month-long carve-out.
The policy shift came after Trump doubled down on his tariffs plan in his address to Congress this week, saying: “There will be a little disturbance, but we’re OK with that.”
The levies’ imposition on Tuesday prompted a turbulent market reaction after Canada and Mexico announced plans to retaliate. All the S&P 500’s post-election gains have been erased following further declines on Thursday.
Shortly after Lutnick’s comments on Thursday, the president confirmed the tariff relief for Mexico on his Truth Social platform: “After speaking with President Claudia Sheinbaum of Mexico, I have agreed that Mexico will not be required to pay Tariffs on anything that falls under the USMCA Agreement. This Agreement is until April 2nd.”
He did not mention relief for Canada, instead claiming in a separate post that “Justin Trudeau is using the Tariff problem, which he has largely caused, in order to run again for Prime Minister”.
Trudeau, who is not seeking re-election, on Thursday said Lutnick’s comments aligned with “some of the conversations we’ve been having with US administration officials”, but he would “wait for an official agreement before talking about a Canadian response”.
He added the remarks were “a promising sign”, but said that as long as US tariffs remain in place, “our response will remain in place”.
The Trump administration’s shift is the latest in a chaotic policy rollout that has shaken America’s trade partners. According to the US trade representative, US goods and services trade under the USMCA totalled about $1.8tn in 2022.
Washington’s latest move came hours after data showed the US trade deficit swelled in January to a record $131.4bn, from a $98.1bn deficit in December. Economists said the increase was partly because of companies rushing to stockpile goods before the imposition of tariffs.
“My expectation is the president will come to the agreement today that USMCA-compliant goods will not have a tariff for the next month until April 2,” Lutnick said.
He added he hoped Canada and Mexico would by then have made sufficient progress on Trump’s demand that they crack down on trafficking of the deadly opioid drug fentanyl.
If so, he said, “this part of the conversation will be off the table and it will move just to the reciprocal tariff conversation”.
Trump has said he plans to impose so-called reciprocal tariffs on trading partners from April 2 to retaliate against taxes, levies, regulations and subsidies that Washington considers unfair.
Lutnick’s comments sparked gains in the Canadian and Mexican currencies. Canada’s dollar rose 0.4 per cent to C$1.4282 against the greenback. Mexico’s peso rallied 0.7 per cent to 20.24 against the dollar.
US stocks were volatile on Thursday, with the S&P 500 trading down 1.5 per cent in early afternoon trading in New York and the tech-heavy Nasdaq Composite trading 2 per cent lower.
