Trump’s Shocking 50% Tariff Reversal: What It Means For US-Canada Trade

US-Canada trade tensions increased sharply before suddenly taking a sharp turn in the opposite direction. Having made up his mind to raise duties on Canadian steel and aluminium imports, President Donald Trump had a change of heart. The policy change ignited sudden financial market jitters, which were already traumatized by inflation fears and economic uncertainty.

Trump Walks Back 50% Tariff Hike on Canadian Metals.

In a dizzying sequence of events on Tuesday, President Trump announced doubling Canadian steel and aluminum tariffs to 50%—from the previous rate. But later in the day, he did an about-face and vowed that tariffs would stay at 25%, the same level applied to other nations. The about-face followed diplomatic back-and-forth between US and Canadian officials and widespread criticism from financial markets.

Canadian metal tariffs were initially created to defend industries, one of Trump’s central pillars of his economic agenda. The last-minute policy turn came after Ontario Premier Doug Ford threatened to slap a 25% surcharge on US electricity exports should Trump cave to the threat of tariffs.

Following prolonged negotiations, Ford suspended the electricity surcharge and arranged to meet with US Commerce Secretary Howard Lutnick in Washington. Subsequently, the White House stated that the increase in tariffs would not go ahead and that the current 25% tariffs would remain.

Impact on Financial Markets

The tit-for-tat in trade policy has had an instantaneous impact on world financial markets. The S&P 500 index (.SPX) dropped after Trump’s first press release but recovered after Ford halted the electricity surcharge and Ukraine signed up for a 30-day truce. Uncertainty over US trade policy led to stock price volatility, as nearly $5 trillion of market value was wiped off US indexes over the last month.

Investor confidence was further rattled by worries over inflation, which higher tariffs have fueled. Increased tariffs on foreign metal generally mean higher prices for various goods, from cars to household appliances, contributing to the squeeze on inflation in a struggling economy.

Escalation of Trade Tensions

The fight over steel and aluminium tariffs is only one front in a larger trade war between Canada and the US, with further threats in store. Trump has complained about Canada’s trade barriers on dairy and other farm products and threatened retaliatory tariffs against Canadian auto exports. Beginning on April 2, the new tariffs might further stress the countries’ trade relationship.

Trump is steadfast in his conviction that tariffs effectively motivate manufacturing to move to the US. He explained, “The higher it goes, the more likely they will build. The biggest win is not the tariffs. That’s a big win. But the biggest win is they move into our country and produce jobs.”

Political Implications in Canada

Trade tensions are a turning point in Canadian politics. Prime Minister Justin Trudeau is set to hand over power to his successor, Mark Carney, who has just won the leadership of the ruling Liberal Party. Carney has not yet had face-to-face negotiations with Trump as he awaits formal swearing-in. His stance on US trade relationships is uncertain, but he will not be far from being put under pressure to address the economic impact of such tariff wars.

The center of the negotiations was Ontario Premier Doug Ford, who first threatened to hold Canada’s power exports hostage and then backed off. His action prompted a slap in the face from the White House, where Press Secretary Karoline Leavitt described it as “egregious and insulting”. It threatened that Canada should think twice about making any effort to shut off supplies of power to the US.

Reactions of Businessmen and Economists

Trump’s volatile trade policies have alarmed many business executives and economists about long-term economic stability. Speaking at a gathering of 100 top executives, some warned that the administration’s quick-shifting stance would chill investment and financial confidence.

Economists are concerned that such long-drawn-out trade disputes may drive the US economy into recession. Senior director of Atlantic Council‘s Geoeconomics Center, Josh Lipsky, said, “This is what a trade war looks like—a tit-for-tat escalation that can quickly spiral to both sides’ economic economies. Recent surveys also show that it took a short time.”

Recent surveys indicate that small businesspeople are weakening. A New York Federal Reserve report indicated increasing consumer pessimism regarding personal finances, inflation, and job prospects.

Potential Future Developments

Looking forward, the U.S.-Canada trade war continues unresolved. Although the immediate threat of higher tariffs has passed, tensions continue. The threat of auto tariffs looming in April may revive hostilities unless both sides agree.

Further, Canada and China have already taken revenge on US exports through their tariffs, meaning that the entire trade war can be intensified. Mexico has not yet avenged Trump’s move to postpone tariffs on its exports. Additionally, Trump demanded additional tariff increases by stating, “The tariffs will be applied without exception or exemption.”

Final Thoughts

Trump’s economic agenda is risky. For instance, the US-Canada trade war is not yet reversed. Although the short-term crisis was avoided, most of the questions were left unresolved, and the administration’s disputed trade policy stands. The world economy, inflation rate, and stock markets still have to face the worst. The United States and Canada will now have to steer these stormy waters very carefully lest they face more economic turbulences and continue their bilateral trade relations.