Trump walks back 50% Canada tariff threat, downplays recession

The White House said 25% tariffs on steel and aluminum would take effect on Canada and other nations, as President Donald Trump backed off a threat to impose 50% duties on the largest US trading partner’s metals.

“Pursuant to his previous executive orders, a 25 percent tariff on steel and aluminum with no exceptions or exemptions will go into effect for Canada and all of our other trading partners at midnight, March 12th,” White House spokesperson Kush Desai said in a statement.

Trump earlier Tuesday had suggested he would double the metal tariffs for Canada in retaliation for Ontario imposing a 25% surcharge on electricity sent to US states. That threat launched a market slide, intensifying weeks of volatility, and ramping up the cloud of uncertainty hanging over major North American industries.

Ontario Premier Doug Ford and US Commerce Secretary Howard Lutnick, though, announced the Canadian province would suspend its plans to slap a surcharge on electricity exports to the US. The pair plan to meet Thursday in Washington.

“With any negotiation that we have, there’s a point that both parties are heated and the temperature needs to come down. And I thought this was the right decision,” Ford told reporters. “They understand how serious we are about the electricity and the tariffs.”

That appeared to largely diffuse Trump’s threat, with him telling reporters moments later that he would consider backing off the heightened tariffs on Canada.

The turmoil highlighted the erratic nature of Trump’s tariff threat, which have been subject to delays, exemptions and reversals. Tuesday’s chaos follows a familiar Trump playbook of making broad threats, only to later scale those back after extracting concessions from trading partners.

The back and forth marked the latest escalation in the trade dispute between the US and Canada, and risked further upsetting markets that have posted steady losses since the president moved forward last week with an initial round of tariffs on Canada and Mexico. US stocks pared back some of their earlier losses after Trump said he did not believe the US would see a recession; the S&P 500 Index closed down 0.76% in New York, while the Dow Jones Industrial Average fell 1.14%.

Tuesday morning Trump had also said he would “substantially increase” levies on Canadian automobile parts on April 2 if Ottawa does not drop tariffs on dairy products and other US goods. It’s unclear if Trump will follow through on those threats in the coming weeks.

Those levies would “essentially, permanently shut down the automobile manufacturing business in Canada,” Trump said. The president on Tuesday reiterated his belief that Canada should become a part of the US, saying it would “make all Tariffs, and everything else, totally disappear.”

Canada is the main source of aluminum for US industry, and several of the Ontario-based auto plants Trump is threatening to shut down are owned by US automakers.

Trump’s latest actions pose a test to the Canadian Prime Minister-Designate Mark Carney, who is set to replace Justin Trudeau.

“President Trump’s latest tariffs are an attack on Canadian workers, families, and businesses,” Carney earlier said, adding that his “government will ensure our response has maximum impact in the US and minimal impact here in Canada, while supporting the workers impacted.”

Caught off-guard

The increasingly heated exchanges underscored the shifting and unpredictable nature of trade under the new administration and the extent to which they rest on the whims of the president. Industry experts supporting the steel and aluminum tariffs were taken off guard Tuesday morning, according to people familiar with the matter, indicating Trump had not widely discussed doubling tariffs on Canada on the eve of their implementation.

Trump’s trade fight is a stark departure from his first-term agenda, where tariffs were widely threatened but ultimately applied mostly to China and certain sectors, including steel and aluminum, said Marc Short, who served as chief of staff to Vice President Mike Pence in Trump’s first term.

“I think it’s dramatically different than the first administration, and I think one of the biggest challenges is markets look at it and say, you know, this is just part of his bluster, right?” Short said in an interview. “I think markets just assumed it would be the same, that it’s just negotiation, and it’s not.”

“There is nothing that has benefited the Liberal Party of Canada more than the president’s trade policy,” Short said.

Early in his term, Trump imposed 25% duties on Canadian and Mexican goods, only to subsequently delay the move for one month. When the tariffs went into effect last week, the US president within days moved to exempt products covered under USMCA, a North American free trade agreement he negotiated during his first term, after markets dropped and at the urging of US auto manufacturers.

Another planned wave of tariffs could hit as soon as April. Trump plans to impose “reciprocal” duties that he considers equivalent to countries’ tariffs, non-tariff barriers and certain taxes, including Canada’s 5% general sales tax, which is applied to nearly all purchases domestically. Trump has regularly complained about Canada’s dairy tariffs, which are a part of the country’s protected system of production quotas, known as supply management.

Canadian response

Ontario’s energy taxes would have put price pressure on Americans whose budgets are already strained by persistent inflation.

Canada’s federal government has also imposed tariffs on items like American orange juice, footwear and motorcycles.

Ford, one of the country’s prominent conservative politicians, enacted the electricity tariffs amid widespread outrage in Canada over Trump repeatedly suggesting that the US should annex Canada. Ford said Tuesday that while he wanted to maintain electricity flows to the US, he would not hesitate to cut off exports if Trump continued the trade war.

“Is it a tool in our tool kit? 100%,” Ford said in an interview with CNBC.

(By Jordan Fabian, Josh Wingrove and Jennifer A. Dlouhy)