President Donald Trump backed away from a major escalation in the trade dispute with Canada on Tuesday, which had threatened steep tariffs on Canadian steel, aluminum, and electricity. In response, Ontario suspended surcharges on electricity exports to the U.S.
After a day of back-and-forth tariff threats that sent markets plummeting for a second consecutive day, U.S. Commerce Secretary Howard Lutnick, Canada’s Finance Minister Dominic LeBlanc, and Ontario Premier Doug Ford announced they would meet Thursday to renegotiate the USMCA, the trade agreement between the U.S., Canada, and Mexico.
Ontario agreed to halt its 25% surcharge on electricity exports to Michigan, Minnesota, and New York. Earlier in the day, Trump had threatened a 50% tariff on Canadian aluminum and steel, escalating tensions in the trade dispute over Ontario’s electricity charges. However, Trump later indicated he would back off.
When asked by a reporter at a White House event whether the 50% tariff would still go into effect, Trump responded, “I’ll let you know.” Shortly after, Peter Navarro, White House senior counselor for trade and manufacturing, confirmed in a CNBC interview that the higher tariffs would not be implemented.
Instead, 25% tariffs on all steel and aluminum imports to the U.S., including from Canada, were set to go into effect at midnight Wednesday, according to White House spokesperson Kush Desai.
“It may go up higher,” Trump said during a Business Roundtable event. “The higher it goes, the more likely it is they’re going to build,” referring to companies relocating production to the U.S.
Markets initially plunged following Trump’s Truth Social post about the 50% tariff threat on Canadian goods but recovered somewhat after the joint statement from Lutnick and Ford. The Dow trimmed its losses but still dropped after Trump remarked outside the White House that he didn’t care about the stock market’s response.
The Dow closed the day down 478 points, or 1.1%, while the broader S&P 500 dropped 0.8%, nearing correction territory, defined as a 10% decline from its recent high. The Nasdaq Composite, already in correction, fell another 0.2%.
Tit for Tat
Earlier Tuesday morning, Trump responded to Ontario’s 25% surcharge on electricity to New York, Minnesota, and Michigan by threatening a 25% tariff on Canadian electricity. The surcharge, announced on Monday, could have raised utility bills by up to $100 a month, according to Ontario Premier Doug Ford.
Additionally, Trump announced plans to impose even higher tariffs on Canadian steel and aluminum than originally intended.
“Based on Ontario, Canada, placing a 25% tariff on ‘Electricity’ coming into the United States, I have instructed my Secretary of Commerce to add an additional 25% tariff, bringing it to 50%, on all steel and aluminum coming into the United States from Canada, one of the highest tariffing nations anywhere in the world,” Trump said in a social media post on Tuesday.
In response, Ford threatened to cut off electricity supplies to the U.S entirely, and Mark Carney, Canada’s incoming leader, stated that Canada would continue applying pressure on the U.S. in retaliation for Trump’s tariff threats.
“My government will keep our tariffs on until the Americans show us respect and make credible, reliable commitments to free and fair trade,” Carney posted on X on Tuesday, before the announcement from Lutnick and Ford. White House Press Secretary Karoline Leavitt later stated that Trump had yet to speak with Carney, but added, “His phone is always open to leaders who wish to speak with him.”
Trump had previously stated he would declare a national electricity emergency in the states Ontario targeted, expressing outrage over Canada’s actions. “Can you imagine Canada stooping so low as to use ELECTRICITY, which so profoundly affects the lives of innocent people, as a bargaining chip and threat?” he said in a Truth Social post.
Meanwhile, he also threatened to “substantially” increase tariffs on cars imported from Canada, set to begin on April 2.
“These auto tariffs will, essentially, permanently shut down the automobile manufacturing industry in Canada. Those cars can easily be made in the USA!” Trump declared.
The potential 50% tariffs on Canadian steel and aluminum come just ahead of a midnight deadline when Trump had previously threatened to impose 25% tariffs across all steel and aluminum imports. It remains unclear whether Canada would be included in these tariffs.
Another looming threat involves a 250% tariff on Canadian dairy products, which Trump announced last Friday but has yet to finalize. This tariff would be in response to Canada’s high taxes on U.S. dairy imports, with milk taxes reaching as high as 241%.
In an interview with CNN’s Wolf Blitzer on Tuesday, Ontario Premier Doug Ford acknowledged that such tariffs “get under [Trump’s] skin,” but argued that this only reinforced the need for Trump to “sit down and talk about it.”
A Threat to the American Economy as Well
While Trump’s aim is to pressure Canada by imposing higher steel and aluminum tariffs, this move risks damaging the U.S. economy as well.
Canada is the largest supplier of iron, steel, and aluminum to the U.S. In 2022, the U.S. imported $11.4 billion worth of aluminum and $7.6 billion worth of iron and steel from Canada, according to U.S. Commerce Department data. Canadian aluminum exports made up 41% of all aluminum imported into the U.S., while Canadian iron and steel accounted for nearly a quarter.
A 25% tariff on Canadian aluminum alone could cost the U.S. 100,000 jobs, warned Alcoa CEO William Oplinger, whose company, though based in Pittsburgh, operates a significant portion of its aluminum production in Canada.
The Aluminum Association also reported that while the aluminum industry directly employs 164,000 workers in the U.S., it indirectly supports an additional 272,000 jobs in related industries such as mining, construction, and manufacturing.
Former Treasury Secretary Larry Summers criticized the tariff threats, calling them “the worst trade policy yet,” adding that they would be a “self-inflicted wound to the U.S. economy” at a time when recession risks are growing.
In a statement to CNN, United Steelworkers president David McCall argued, “China and other bad actors have abused international trade laws for decades, undercutting our domestic industries and threatening the livelihoods of workers who play by the rules.” However, he emphasized that “Canada, however, has always been a strong ally and should not be lumped with trade cheaters seeking to dominate global markets at our expense.”
From Cars to Appliances
The impact of tariffs on aluminum and steel could be felt across a wide range of industries, significantly raising prices for American consumers.
Cars, for example, use hundreds or even thousands of pounds of steel and aluminum. While Trump suggested that his “substantially” higher auto tariffs would “shut down” Canada’s auto industry, they are more likely to backfire on U.S. auto production due to the deeply integrated North American car supply chain.
Additionally, products such as appliances, machinery, infrastructure, medical devices, cans, and power lines all rely on steel and aluminum, meaning tariffs on these metals could increase prices for many commonly used items.
