Trump Expands Exemptions on Canada and Mexico Tariffs
US President Donald Trump Broadens Exemptions on New Trade Tariffs
US President Donald Trump has signed orders significantly expanding the range of goods exempted from the tariffs imposed earlier this week on imports from Canada and Mexico.
This marks the second time in two days that Trump has softened his stance on tariffs targeting the US's two largest trade partners. The measures have heightened uncertainty for businesses and unsettled financial markets. On Wednesday, just a day after implementing a 25% tariff on imported cars, Trump announced a temporary reprieve for car manufacturers.
Mexican President Claudia Sheinbaum expressed gratitude for the decision, while Canada’s finance minister confirmed that in response, the country would delay its planned second round of retaliatory tariffs on US goods.
Canadian Prime Minister Justin Trudeau described a "colourful" conversation with Trump regarding tariffs during a Thursday morning phone call. Reports from US and Canadian media indicate that Trump used profane language multiple times during the discussion.
Trudeau acknowledged that a trade war between the two allies remained a strong possibility despite some selective tariff relief.
"Our goal remains to get all tariffs removed," he stated.
Meanwhile, Sheinbaum characterized her own call with Trump as "excellent and respectful." She also emphasized both nations’ commitment to combating the flow of the opioid fentanyl from Mexico into the US while curbing the trafficking of firearms in the opposite direction.
The tariff exemptions apply to goods traded under the US-Mexico-Canada Agreement (USMCA), which Trump signed during his first term. Among the items currently benefiting from USMCA’s provisions are televisions, air conditioners, avocados, and beef, according to an analysis by Trade Partnership Worldwide.
Additionally, tariffs on potash, a key fertilizer ingredient used by US farmers, were reduced from 25% to 10%.
Despite these exemptions, a White House official stated that approximately 50% of US imports from Mexico and 62% from Canada could still face tariffs. These figures may shift as companies adjust their operations in response to the changes.
The White House has also reiterated its commitment to further trade actions. Officials plan to unveil recommendations for targeted "reciprocal" tariffs on various countries on April 2.
Market Reactions and Economic Concerns
Trade tensions have rattled financial markets, with the S&P 500 index closing down nearly 1.8% on Thursday.
George Godber, a fund manager at Polar Capital, criticized the unpredictability of Trump's tariffs, describing them as a "hokey cokey" policy that makes it nearly impossible for businesses to manage supply chains. He added that while US firms face pressure, European markets, particularly in Germany, have seen a more favorable response.
Trump dismissed concerns that his policy shifts were driven by market reactions. "Nothing to do with the market," he said. "I'm not even looking at the market because, long term, the United States will be very strong with what’s happening."
Political Fallout and Industry Responses
Ontario Premier Doug Ford dismissed the partial relief as insufficient. Earlier in the week, Ford had signaled his province's intention to impose a 25% tariff on electricity exports to New York, Michigan, and Minnesota starting Monday.
"Honestly, it really bothers me. We have to do this, but I don’t want to do this," Ford said.
Meanwhile, US Treasury Secretary Scott Bessent warned against retaliatory tariffs, saying they could further escalate trade tensions.
"If you want to be a numbskull like Justin Trudeau and say, 'Oh, we’re going to do this,' then tariffs are probably going to go up," Bessent remarked during a speech at the Economic Club of New York.
The economies of the US, Canada, and Mexico are deeply intertwined, with billions of dollars in trade crossing their borders daily. Trump argues that tariffs will bolster American industries and manufacturing. However, economists warn they could raise consumer prices in the US and provoke economic downturns in Canada and Mexico.
Daniel Anthony, president of Trade Partnership Worldwide, noted that roughly $1 billion in trade enters the US from its two neighbors daily without claiming duty-free exemptions under USMCA.
"Whether importers can or will start claiming USMCA remains to be seen, but there’s a huge amount of money at stake," he said.
Economic Impact
The US economy is already experiencing the effects of trade policy disruptions. In January, imports surged due to tariff fears, leading to a 34% increase in the US trade deficit, which surpassed $130 billion, according to the Commerce Department.
Gregory Brown, the head of BenLee, a trailer manufacturing company, said he had been forced to adjust prices multiple times over the past five weeks due to tariff uncertainty. He noted, however, that his customers were still willing to pay higher prices, suggesting that the economy remains strong.
"It's a great growth economy," Brown said, pointing out that economic conditions had been robust under President Biden as well. He interpreted Trump's quick tariff exemptions as evidence of a business-minded leader adapting to economic realities.
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