Trump halts plan for 50% steel and aluminium tariffs on Canada

U.S. President Donald Trump suspended a plan to double tariffs on Canadian steel and metal imports to 50% hours after threatening to do so. Nevertheless, the original 25% tariffs will remain in effect, having been implemented since March 12. This move marks the latest exchange in a US-Canada trade war that could inflict economic damage on the two North American neighbors.

This shift from the Trump administration stems from Ontario, Canada, suspending a new 25% fee on electricity exports to some northern U.S. states. Trump trade advisor Peter Navarro told CNBC that "sanity prevailed," confirming that Trump would not move forward with the latest tariff threat. Canada is one of the United States' closest trading partners, but has been at the forefront of trade disputes since Trump took office.

Previously, Trump had imposed a blanket 25% tariff on Canadian goods, including those from Mexico, though he signed an order temporarily exempting a large number of goods, claiming it was in response to the influx of drugs and immigrants into the U.S. Canada also faces 25% tariffs on steel and aluminum, which were scheduled to take effect on Wednesday, after Trump said he would end previous tariff exemptions granted to some countries.

Canada considers Trump's attacks unfounded and has announced retaliatory measures, including new tariffs on $30 billion CAD ($22 billion USD; £16 billion GBP) worth of American products. Ontario Premier Ford had announced a tax on U.S. electricity exports in an effort to get the tariffs removed. He also stated that he would "not hesitate to completely cut off the power supply" if the U.S. "escalated" the situation.

In announcing the decision to suspend the electricity tariff, Ford said he believed it was the "right decision" to focus the discussion on the broader North American Free Trade Agreement. "In any negotiation, there are times when emotions run high and things need to cool down," he said, thanking Commerce Secretary Howard Lutnick for taking the initiative to contact him for a meeting. "They understand how serious we are," he added. "We all agreed to let sanity prevail. We need to sit down and move this forward."

Trump, in an earlier social media post on Tuesday, threatened to double tariffs on Canadian steel and aluminum, saying it was in response to Ford's actions. He also criticized Canada for relying on the U.S. for "military protection" and reiterated that he wanted Canada to become the 51st state of the U.S. He added that if Canada joined the U.S. as a state, "all tariffs and all other things will be completely gone." The White House declared it a victory, saying in a statement that Trump "once again used the leverage of the American economy (which is the best and largest in the world) to deliver a win for the American people."

This back-and-forth occurred during a period of global market volatility. The U.S. S&P 500 fell a further 0.7% on Tuesday, after falling 2.7% on Monday, its biggest one-day drop since December. The UK's FTSE 100 was down slightly earlier on Tuesday, but fell further after Trump's latest comments, closing down more than 1%. The French CAC 40 and German DAX indices also followed a similar pattern. Monday's stock sell-off began after Trump said the economy was in a "transition" period when asked if the U.S. was headed for a recession.

Investors have been worried about the economic impact of Trump's trade policies, fearing that it could drive up inflation in the U.S. and elsewhere, and that uncertainty could paralyze the economy. Even before Tuesday's comments, Trump's tariffs had already caused concern among U.S. businesses. On Monday, Jason Goldstein, founder of Icarus Brewing, a small brewery in New Jersey, told the BBC that previous tariff announcements had triggered a flood of emails from his suppliers. They warned that prices could rise for everything from grain to aluminum cans. Due to the uncertainty and rapidly changing situation, Goldstein has stocked an extra month's supply of cans and has postponed new purchases.

"It's definitely a worrying time for us," he said. "I've never read this much news, watched this much news in my life, in order to know, what is my industry going to look like tomorrow."