U.S. President Donald Trump has temporarily given Mexico and Canada a break, announcing that all goods and services under the U.S.-Mexico-Canada Agreement (USMCA) from these two major trading partners will be temporarily exempt from the new 25% tariff until early next month. Commerce Secretary Howard Lutnick said exemptions from tariffs on illegal immigration and fentanyl will expire on April 2. By then, Trump is expected to announce a new round of tariffs, including so-called "reciprocal" taxes levied on all countries around the world and import taxes on specific industries such as automobiles, pharmaceuticals and semiconductors.
“Hopefully, Mexico and Canada can do a good enough job on the fentanyl issue” so that “that part of the conversation won’t have to be had” when new tariffs come.
Automobiles and parts that comply with the requirements of the US-Mexico-Canada Agreement will be among the exempted products. Canada's potash fertilizer tax rate, on which U.S. agricultural production relies heavily on fertilizers, is expected to be reduced to 10%. The White House estimates that 62% of trade imported from Canada will still be subject to increased tariffs, most of which are energy products with a 10% tax rate. Half of the goods imported from Mexico are taxed. A White House official cautioned that those ratios could change as importers rush to comply with the new rules.
This decision is another major reversal in Trump's governance. He announced the biggest tariff increase in a century on Tuesday, but backed down just 48 hours later as U.S. stocks tumbled and Republicans expressed concern about the economic consequences.
Trump downplayed the reaction, saying he "wasn't even paying attention to the market." He insists that foreign countries are taking advantage of the United States and that tariffs can make them stronger.
He also warned that the hold on auto tariffs would not last long, saying he would not agree to another delay next month.
"I told them that's it, this is a short-term deal," Trump said, telling auto executives not to come back and beg him to hold off.
Lutnick revealed Thursday morning that Trump is considering granting exemptions to goods from Mexico and Canada that comply with the agreement. U.S. stocks opened lower in New York on Thursday as Trump's push for tariffs unnerved investors. After Lutnick's comments, the stock market recovered some losses, with WTI crude oil falling to session lows, while the Mexican peso and Canadian dollar were stimulated to rise.
Lutnick said both Mexico and Canada have "proposed that a lot of work could be done on fentanyl."
Canadian Prime Minister Justin Trudeau said on Thursday that the country's retaliatory measures would not be reversed unless the Trump administration reversed all tariff increases.