The 24-hour tariff yo-yo continues. The market isn’t amused with “economic warfare”.
Feeling Whipsaw Yet?
The Wall Street Journal reports Trump Pares Back Canada, Mexico Tariffs in Latest Whipsaw on Trade
The U.S. partially pulled back tariffs on some goods from Mexico and Canada after markets sank and companies lobbied President Trump, as the administration’s swerving trade policy strained relations with allies and raised recession fears.
Trump gave America’s neighbors and biggest trading partners a one-month reprieve from 25% tariffs on a range of goods, setting up another showdown for April 2. It was the second time in a month that Trump had retreated from tariffs on Mexico and Canada, highlighting the uncertainty of his trade policies as he also raises duties on Chinese goods and moves ahead with plans for broader tariffs imposed on a host of countries next month.
Thursday’s respite doesn’t end trade tensions in North America, though, and there are still goods that will continue to be hit with new tariffs because they weren’t covered by the U.S.-Mexico-Canada Agreement, or USMCA, U.S. officials said.
Canadian Prime Minister Justin Trudeau said Thursday that Canada likely would be in a trade war with the U.S. “for the foreseeable future.” On Wednesday, Trudeau had publicly called the tariffs a “dumb move,” then held a private phone call with Trump that he said was “colorful” and “constructive.” He declined to address a report by The Wall Street Journal that had a person familiar with the call describing it as heated and including profanity.
The leader of Canada’s most populous province, Ontario, said a 25% export tax on electricity sold to New York, Michigan and Minnesota would take effect Monday and remain in place until Trump drops all tariff threats against Canada, including the potential April 2 snapback.
“As I always say, you know, you touch a stove once, and you get burned, you don’t touch a stove again,” Ontario Premier Doug Ford told reporters in Toronto. “The only deal is, Drop the tariffs unconditionally, sit down and let’s start moving on a new USMCA deal.”
About 40% of Canadian imports and a similar level of Mexican imports fell outside USMCA, but had passed through duty-free because the U.S. imposes no tariffs on those products regardless of the supplier country. Those imports include computers, medical equipment, phones and beer.
Those goods will now face 25% tariffs, White House officials said. Companies never sought to comply with the USMCA rules because there was no tariff benefit associated with compliance.
Stocks dropped Thursday even after the White House announced the partial pullback of tariffs. Tech shares fell, the dollar weakened and recession fears weighed on financial stocks.
The tariff whipsawing over the last few days has unnerved more than markets, with even some Republican senators Thursday calling on the White House to “bring more clarity to their tariff strategy,” as Indiana Sen. Todd Young put it.
The White House’s justification for the tariff reprieve—the automaker supply-chain commitments—added to the confusion Thursday. Some lawmakers say they are unsure whether the tariffs are really aimed at combating fentanyl trafficking—the stated legal justification—or are a tool for reshoring manufacturing, or another objective.
“Are our tariffs, for example, on Canada targeted at insufficient cooperation as it relates to fentanyl trafficking, insufficient funding of their military so they can do their part as a NATO member, non-tariff impediments to U.S. goods and services?” Young wondered aloud on Thursday, referring to the North Atlantic Treaty Organization. “Are they an effort to increase our domestic manufacturing capacity and create good jobs at home? Are they some combination thereof? What combination and to what degree of those are the most important?”
The delay in tariffs highlighted another moment of friendship between Trump and Mexican President Claudia Sheinbaum, whose popularity has soared in Mexico over her handling of the crisis brought on by the tariff threats.
In a phone call between the two leaders Thursday, Sheinbaum said Trump began by saying he wanted to keep unilateral tariffs on Mexican goods. Sheinbaum countered with how much Mexico had cooperated with the U.S., extraditing 29 imprisoned drug kingpins wanted by American prosecutors.
“I told him: President Trump, we are having results,” she said during her daily news conference. “But now that you have imposed tariffs, how are we going to continue collaborating with something that harms Mexico?“ Sheinbaum said she told Trump.
In a social-media post, Trump said: “I did this as an accommodation, and out of respect for President Sheinbaum. Our relationship has been a very good one, and we are working hard, together, on the Border, both in terms of stopping Illegal Aliens from entering the United States and, likewise, stopping Fentanyl.”
Excellent Comments on X Regarding Yo-Yo Tariffs
- SilverFists: Burning your key partners in your economic success is idiotic. Rosenberg had a commentary on BNN today and fwiw I agree with what he was saying in terms of Canada’s cards but an uphill battle as his intention is to re-shore automotive (from Canada) so temporal delay is just a faux pause imho.
- Darren Sissons, The Auto Pact was implemented in 1965 and supply chains united and integrated because it made economic sense to do so. Re-aligning that multi-decade cross border supply chain just isn’t happening in a one term presidential cycle. Thinking otherwise is lunacy.
I appreciate good comments. But it’s like swimming in a cesspool looking for them on X.
Brad Setser had some great comments as well.
Economic Warfare
- Setser: My colleague, Ted Alden, is very level headed and generally a quite mild mannered guy — But everyone has limits! [Image above]
- Even with the (partial)* rollback today, the USMCA (A Trump trade deal by the way) is effectively dead. The needed trust to accept a high level of dependence on the US has been destroyed.
- There are a lot of folks who are gonna be scrambling to to be certified USMCA compliant; for a host of goods where the global US tariff was zero it never mattered til now.
There Is No Plan
Scott Lincicome at the Cato Institute @scottlincicome, simply says “There is no plan.”
Trump Not Watching the Market
In the cesspool delusional category “TRUMP: GLOBALISTS ARE BEHIND STOCK SELL OFF”
That is more than a bit amusing because Trump: “I’m not even looking at the market.”
Returning to the real world …
Erica York at the Tax Foundation
- York: It’s unfortunate Congress gave the president a tax-increase button, and even more unfortunate that Trump has repeatedly pressed it. Because he has, Americans will see higher costs from new import taxes, and that will lead to lower incomes.
- Secretary Bessent on Tariffs: Over the long run “I’m not worried about inflation” from tariffs. “We could get a one-time price adjustment.” “Nothing is more transitory than tariffs if it’s a one-time price adjustment.”
- Scott Lincicome on Bessent: For those keeping score at home, we’ve now gone from “tariffs don’t raise prices” to “tariffs only raise prices once.” The latter, ofc, is technically correct but will be cold comfort to inflation-weary Americans forced to pay Trump’s one-time price increase (esp if it’s big)
Presidents Don’t Cause Inflation (Or Do They?)
- Returning to Erica York: It’s typically misguided to blame presidents for price changes, it’s not like the Resolute Desk has a big “price change” button for presidents to push. But in the case of President Trump’s new tariffs, such a button does exist — and he pushed it.
- Reminder that almost all the tariff revenue generated under Trump 1.0 went right back out the door to compensate farmers for lost export income thanks to the trade war.
- Hard to underscore how extreme Trump’s tariff actions are. His first term tariffs affected $380 billion of imports, mainly from China, over the course of 2018 and 2019. His second term tariffs now affect $1.4 trillion of imports, mainly from allies, over the course of a month.
Irony, Hoot, and Questions of the Day
- Irony: Trump temporarily eliminated his own tariffs to “protect American car manufacturers and American farmers.”
- Hoot (and questions) of the day: Since we need to eliminate tariffs to protect farmers and car manufacturers, why did we put the tariffs on in the first place?
- Are we only concerned about cars and farmers? What about everyone else clobbered by these tariffs?
Related Posts
March 3: Welcome to the Recession, Trump Hits Canada and Mexico with 25 Percent Tariffs
“No room left” for negotiations says Trump.
And now US Commerce Secretary Lutnick seeks negotiation. Fancy that.
March 5: The Tariff Clown Show Continues with Another One-Month Extension for Autos
Another one-month reprieve will solve as much as the last one-month reprieve. For those keeping score, nothing.
March 6, 2025: Trump Makes Imports Great Again With Two New Record Trade Deficits
The Census Department reports two new records trade deficits in January.
We have not yet felt the hit on small manufacturers do to extremely unwise tariffs.
For discussion, please see How One Small Business Owner Is Coping With Trump’s Tariffs
Fifty-four percent of small businesses polled said that tariffs would negatively affect their companies, while just 11 percent said they would benefit.
Please read the above post and multiply it by tens of thousands of small businesses.
My Take For Now
- The slowdown in jobs will matter more than price hikes due to tariffs. Bond yields at the long end will decline modestly.
- My alternate second take is lingering stagflation lite.
- I rule out door number 3, a soft landing. Indeed, we may have a very hard landing due to tariff madness.
- The “No Landing” (up, up, and away) door number 4 scenario that worked for a long time is now dead.
Base Case: A Global Trade War Has Started – Global Recession Will Follow
The most significant global trade war since Smoot-Hawley and the Great Depression is underway.