President Trump confused investors and companies that rely on trade with Canada and Mexico by abruptly suspending many of the duties on Thursday, two days after he had imposed broad penalties on those nations.
To escape the harsh 25 percent tariffs he put on two of America's biggest trading partners just days before, the president stated that he would permit goods that are traded by the terms of the U.S.-Mexico-Canada Agreement, the trade agreement he signed during his first term.
Many of the tariffs that Mr. Trump had imposed on goods from Canada and Mexico—levies he claimed were required to stop the flow of migrants and narcotics into the United States—are essentially lifted by the suspension.
He made his decision the day after he promised to give manufacturers a 30-day reprieve after they told the president that the tariffs would seriously harm American automakers. Mr. Trump stated that additional taxes on goods from Canada and Mexico will be implemented in April, implying that any respite would be temporary.
Stock markets have plummeted as a result of Mr. Trump's erratic, stop-and-start strategy, and businesses that rely on trade with Canada and Mexico—which provide more than 25% of U.S. imports and over a third of U.S. exports—are feeling anxious. Mexico threatened to put its own import taxes on U.S. goods on Sunday if Mr. Trump did not budge after Canada responded to Mr. Trump's tariffs with penalties on $20.5 billion worth of American goods, including agricultural supplies.
However, financial markets, which have been tense since Mr. Trump escalated his trade battle earlier this week, were not much calmed by the decision to defer the duties. Mr. Trump imposed a second 10 percent tariff on all Chinese imports in addition to targeting Canada and Mexico, which prompted Beijing to retaliate on American goods once more. None of the taxes the president has imposed on China have been suspended.
Thursday saw a 1.8 percent decline in the S&P 500, bringing the index's weekly decline to 3.6 percent and setting it up for its worst week since a banking crisis two years ago that forced out some of the nation's minor institutions.
Speaking Thursday from the White House, Mr. Trump said that his choice would safeguard American farmers and automakers. He maintained that his order had "nothing to do with the market" and that there were "no delays at all."
He declared, "I'm not even looking at the market because what's happening here will make the United States very strong in the long run." "Now, until I came along, no president took any action against these nations and businesses—foreign companies—that have been defrauding us."
In a previous social media post, the president said that he was permanently suspending duties on several Mexican products following a conversation with the president of Mexico. However, on April 2, he had already promised a different set of tariffs.
He posted on social media, "I have agreed with Mexican President Claudia Sheinbaum that Mexico will not be required to pay Tariffs on anything that falls under the USMCA Agreement."
"We have had a very positive relationship, and we are working hard together on the border to stop fentanyl and illegal aliens from entering the United States," he continued.
“We had an excellent and respectful call in which we agreed that our work and collaboration have yielded unprecedented results,” Ms. Sheinbaum wrote on social media Thursday, expressing her gratitude to Mr. Trump.
Mr. Trump added later in the day that some Canadian products would be affected by his ban.
Following Mr. Trump's action, Canada is halting its preparations to implement a second round of retaliatory tariffs, according to Dominic LeBlanc, the country's finance minister.
The premier of Ontario, the most populous province, Doug Ford, however, rejected the suspension. Mr. Ford told reporters, "This whole situation with President Trump is a mess." "We have already traveled this path. On April 2, he continues to threaten tariffs.
In a call with reporters Thursday, Peter Navarro, senior counselor for trade and manufacturing, explained that the tariffs were intended to prevent fentanyl-related deaths. "A solemn commitment from China, Canada, and Mexico to cease killing Americans and to take action that will immediately stop the fentanyl carnage is what America needs right now," he stated.
In response to Mr. Trump's tariffs, Canada and Mexico have taken several steps to fortify border security, and according to U.S. statistics, Canada is only partially to blame for the fentanyl entering the country. There doesn't seem to be any current, nationwide data on fentanyl overdose deaths, which is another statistic that Trump officials regularly bring up.
Tariffs won't be waived for all imports. About half of Mexican imports and 38% of Canadian imports had U.S.M.C.A. preferences last year, according to a White House official who briefed reporters but was not permitted to talk in public. According to the official, Canadian-imported oil usually did not, and as a result, it would be subject to a 10% duty.
The quantity of commodities that the tariff suspension could impact has been estimated by economists in a variety of ways. Approximately 15% of U.S. item imports from Canada and Mexico could not qualify for preferential tariffs under the U.S. M.C.A., according to estimates from the Peterson Institute for International Economics.
According to William Jackson, Capital Economics' chief emerging markets economist, roughly 10% of Mexico's exports to the US do not fall under the terms of the USMCA trade pact. He added that it includes some exports of machinery and cars.
"This is because producers have found it difficult to meet the regional content requirements required for tariff-free trade in both cases," Mr. Jackson stated. For instance, instead of using the provisions of the U.S. M.C.A., BMW imports certain cars from a manufacturer in San Luis PotosÃ, Mexico, for which it pays a duty.
According to the White House official, the suspension was prompted by American automakers, who contended in a Tuesday phone conversation with the president that imposing tariffs on vehicles and parts from Canada and Mexico would cost them billions of dollars in additional expenses and essentially wipe out all of their businesses' profits.
Farmers that rely on Canadian fertilizer imports and export their goods to Canada and Mexico were among the numerous other trade groups who voiced similar concerns regarding the levies.
According to the presidential order, a 10 percent levy rather than a 25 percent one would be applied on potash, a Canadian fertilizer that is essential to American farmers.
On Thursday, Mr. Trump declared, "We don't need trees from Canada." "Cars from Canada are not necessary for us. We don't require Canadian energy.
Then, he added, "if we have more oil and gas than anyone, we can be self-sustaining, which is in most things — our forests are massive, massive forests." "The crazy environmentalists who stopped us simply won't let us use it."
The overall economic harm that Mr. Trump's levies would cause could not be significantly lessened by the tariff suspension. In addition to announcing tariffs on auto imports and "reciprocal" taxes on April 2, the president has stated that he will slap 25% tariffs on all steel and aluminum starting on March 12. In addition to taking into account other trade-affecting policies like taxes and currencies, those levies will increase U.S. tariffs to match those set by other nations.
According to Mr. Trump's economic advisors, the tariffs won't increase inflation. On Thursday, however, Treasury Secretary Scott Bessent admitted that a brief increase in prices might occur.
Can tariffs be applied as a one-time pricing change? "Yes," Mr. Bessent stated at the New York Economic Club.
However, Mr. Bessent stated that he was not worried about trade policies raising costs because they were part of Mr. Trump's larger economic program, which also includes boosting energy production and reducing regulations.
"I'm not concerned about inflation on a continuum," Mr. Bessent stated.
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