A senior US official suggested on Tuesday that President Donald Trump may ease tariffs on Canada and Mexico this week while keeping his focus on China, just hours after Canadian Prime Minister Justin Trudeau lashed out at Washington’s trade policies.
“I think he’s going to work something out with them,” Howard Lutnick told Fox Business, hinting that an announcement could come as soon as Wednesday.
“Somewhere in the middle will likely be the outcome—the president moving with the Canadians and Mexicans, but not all the way,” he added.
Earlier in the day, an irate Trudeau accused Trump of deliberately trying to destabilise Canada’s economy to make it easier for the US to annex its northern neighbour. He also criticised the White House for aggressively targeting allies while “appeasing” Russia over its actions in Ukraine.
Trump had initially announced 25% tariffs on Canadian and Mexican imports in February, citing their alleged failure to curb illegal immigration and drug trafficking, before temporarily pausing the measure. On Tuesday, he reinstated the tariffs, claiming insufficient progress had been made on those issues.
In response, Canada immediately imposed retaliatory tariffs, prompting Trump to threaten further escalation while ridiculing Trudeau’s leadership.
Markets tumble as trade tensions escalate
Concerns over the intensifying trade conflict sent global markets tumbling, with major Wall Street indexes sliding for a second consecutive day. The sweeping tariffs affect a wide range of goods imported from Canada and Mexico, including essential items like avocados and the lumber used in US home construction.
Canadian provinces ramped up their economic response, with several banning US alcohol products as part of a coordinated national effort to push back against Trump’s trade measures.
Meanwhile, Trump also escalated tensions with China by signing an order to increase existing tariffs from 10% to 20%, further straining relations between the world’s two largest economies. In response, Beijing condemned the “unilateral imposition of tariffs” and filed a complaint with the World Trade Organization. China also announced 10-15% tariffs on various US agricultural products, including soybeans and chicken, and suspended imports of US lumber.
Tariffs could worsen inflation, experts warn
Economic analysts and business leaders have raised concerns that rising import costs will drive up prices for consumers, potentially complicating efforts to rein in inflation—a key issue in Trump’s re-election campaign.
The impact could be particularly severe in grocery stores, as Mexico supplies 63% of US vegetable imports and nearly half of its fruit and nut imports, according to the US Department of Agriculture.
“If there’s a 25% tariff, those prices will go up,” said Brian Cornell, CEO of Target, in an interview with CNBC.
Similarly, Charles van der Steene, North American president of shipping giant Maersk, warned that tariffs are “inflationary in their essence,” and that costs will inevitably rise for businesses and consumers alike.
The housing market is also likely to feel the strain, with over 70% of two key building materials—softwood lumber and gypsum—sourced from Canada and Mexico, according to the National Association of Home Builders. Truck drivers at the Otay Mesa border crossing in Mexico reported delays and disruptions as they attempted to move goods into the US.
Canada vows to fight to the ‘bitter end’
Canada’s 25% tariffs on $30 billion worth of US imports took effect on Tuesday, with Trudeau confirming that they would be expanded to cover an additional $125 billion in 21 days if necessary.
“Canadians are reasonable. We are polite,” he said. “But we will not back down from a fight.”
Addressing Trump directly, Trudeau reiterated his belief that while the US president is a “smart guy,” his trade strategy is “a very dumb thing to do.”
Meanwhile, China vowed to fight the US trade war to the “bitter end,” with its tariffs set to take effect next week, impacting tens of billions of dollars in American exports. The Chinese foreign ministry also announced a suspension of US lumber imports and halted soybean shipments from three major American exporters.
