US President Donald Trump has signed orders significantly expanding the list of goods exempted from the new tariffs imposed on Canada and Mexico earlier this week. This marks the second time in two days that Trump has scaled back tariffs on the US’s two largest trade partners, a move that has generated uncertainty for businesses and unsettled financial markets.
On Wednesday, Trump announced a temporary exemption for carmakers from a 25% import duty just a day after its implementation. Mexican President Claudia Sheinbaum expressed gratitude for the decision, while Canada’s finance minister stated that Canada would, in response, delay its planned second round of retaliatory tariffs on US products. Canadian Prime Minister Justin Trudeau disclosed that he had a “colourful” conversation with Trump regarding the tariffs during a phone call, during which the US president reportedly used profane language multiple times.
Despite some targeted relief, Trudeau noted that a trade war between the two allies appeared inevitable for the foreseeable future. “Our goal remains to get these tariffs, all tariffs, removed,” he stated. Canada has already implemented its first round of countermeasures, affecting C$30 billion ($21 billion, £16 billion) worth of US goods. The ongoing tensions have rattled financial markets, with the S&P 500 index falling nearly 1.8% on Thursday.
In signing the exemptions, Trump rejected claims that he was backtracking due to concerns about the stock market. “Nothing to do with the market,” he asserted. “I’m not even looking at the market, because long-term, the United States will be very strong with what’s happening.”
The exemptions apply to goods traded under the US-Mexico-Canada Agreement (USMCA), which Trump signed during his first term. Items benefiting from this exemption include televisions, air conditioners, avocados, and beef, according to Trade Partnership Worldwide. However, a White House official noted that approximately 50% of US imports from Mexico and 62% from Canada may still face tariffs, with these figures potentially changing as businesses adjust their trade practices.
The White House remains committed to its broader tariff strategy, with further measures expected on April 2. Officials plan to announce “reciprocal” trade duties targeting countries worldwide. Trump stated that the temporary exemptions were granted after a discussion with Sheinbaum and were intended to aid carmakers and parts suppliers. The adjustments also reduced tariffs on potash, an essential fertilizer ingredient for US farmers, from 25% to 10%.
Following the exemption announcement, Sheinbaum described her conversation with Trump as “excellent and respectful,” highlighting a mutual commitment to curbing the trafficking of fentanyl from Mexico to the US and restricting gun smuggling in the opposite direction.
Mixed Reactions from Canada
Ontario Premier Doug Ford criticized the limited exemptions, stating, “A pause on some tariffs means nothing.” Before the exemptions were announced, he had declared that Ontario would impose a 25% tariff on electricity supplied to 1.5 million homes and businesses in New York, Michigan, and Minnesota. “Honestly, it really bothers me. We have to do this, but I don’t want to do this,” he remarked.
Meanwhile, US Treasury Secretary Scott Bessent dismissed Canadian retaliatory measures as counterproductive. “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,” he said during an event at the Economic Club of New York.
The economies of the US, Canada, and Mexico are deeply interconnected due to decades of free trade, with goods worth billions crossing their borders daily. While Trump argues that tariffs will protect American industry and revive domestic manufacturing, economists warn of rising consumer prices and potential economic downturns in Mexico and Canada. According to Daniel Anthony, president of Trade Partnership Worldwide, approximately $1 billion in daily trade from Mexico and Canada does not qualify for USMCA duty-free exemptions. “Whether importers can or will start claiming USMCA remains to be seen, but it’s a huge amount of money at stake,” he noted.
Economic Implications and Business Reactions
In the US, the effects of Trump’s trade policies are already becoming evident. Fears over tariffs drove a surge in imports in January, causing the US trade deficit to rise by 34% to over $130 billion (£100 billion), according to the Commerce Department.
Gregory Brown, CEO of BenLee, a manufacturer of large trailers, stated that his company had to adjust prices multiple times over the past five weeks due to the fluctuating tariff landscape. With upcoming expansions of tariffs on steel and aluminum, Brown noted that while customers have so far been willing to absorb higher prices, the long-term outlook remains uncertain. “It’s a great growth economy,” he said, adding that economic strength had persisted under Biden as well. He saw Trump’s swift tariff adjustments as evidence of a president responsive to “business reality.”
However, others are less optimistic. “I think we’re going to have a recession before we see any benefits,” said one investment manager. “You’re going to get the bad before you get the good.”