US-Canada trade war heats up as Trump doubles metals tariffs, then backs off

WASHINGTON/OTTAWA - US President Donald Trump reversed course on March 11 afternoon on a pledge to

double tariffs on steel and aluminum from Canada to 50 per cent,

just hours after announcing the higher tariffs, in rapid-fire moves that scrambled financial markets.

The switch came after a Canadian official also

backed off his own plans for a 25 per cent surcharge on electricity.

Mr Trump’s latest salvo whipsawed financial markets and rekindled fears of inflation. It also followed Ontario Premier Doug Ford’s announcement that he would place a 25 per cent surcharge on the electricity Canada’s most populous province supplies to more than 1 million US homes unless Mr Trump dropped all of his tariff threats against Canada’s exports into the US.

Faced with Mr Trump’s 50 per cent tariff threat, Mr Ford agreed to suspend the surcharge and meet with US Commerce Secretary Howard Lutnick in Washington on March 13.

The White House then announced that only the previously planned 25 per cent tariffs on steel and aluminum products from the United States’ northern neighbour and all other countries would take effect on March 12 - with no exceptions or exemptions.

“President Trump has once again used the leverage of the American economy, which is the best and biggest in the world, to deliver a win for the American people,” White House spokesperson Kush Desai said in a statement.

“Pursuant to his previous executive orders, a 25 per cent tariff on steel and aluminum with no exceptions or exemptions will go into effect for Canada and all of our other trading partners at midnight, March 12th.”

The back-and-forth between the US and Canada further unsettled financial markets already battered by Mr Trump’s focus on tariffs.

After tumbling hard after Mr Trump’s initial post on Truth Social, stocks rebounded after Mr Ford said he would suspend the surcharge and Ukraine agreed to a 30-day ceasefire.

The S&P 500 index dropped as low as 5,528.41 points, briefly marking a 10 per cent fall from its record closing high of 6,144.15 on Feb 19, which is commonly known as a market correction.

US stocks have fallen hard since reaching a record high about a month after Mr Trump took office on Jan 20, with nearly US$5 trillion (S$6.7 trillion) of market value erased from US indexes.

Mr Trump triggered the selloff with a morning post on his Truth Social media platform, saying he had instructed Mr Lutnick to put an additional 25 per cent tariff on the metals products from Canada that take effect on March 12, on top of the 25 per cent on all imported steel and aluminum products from other countries.

He also criticised Canada for trade protections on dairy and other agricultural products and threatened to “substantially increase” duties on cars coming into the US that are set to take effect on April 2 “if other egregious, long time Tariffs are not likewise dropped by Canada”.

The US president shook off the market gyrations, telling reporters that markets would go up and down, but that he had to rebuild the economy.

Mr Trump, heartened by Ontario’s move, said the tariff rates could rise further, building pressure on countries to move manufacturing into the United States.

“The higher it goes, the more likely it is they’re going to build ... The biggest win is not the tariffs. That’s a big win. It’s a lot of money. But the biggest win is they move into our country and produce jobs,” he said, insisting the tariffs would “be throwing off a lot of money to this country”.

The escalation of the trade war occurred as Prime Minister Justin Trudeau prepared to hand over power this week to his successor Mark Carney, who won the leadership race of the ruling Liberals last weekend.

On March 10, Mr Carney said he could not speak with Mr Trump until he was sworn in as prime minister.

White House press secretary Karoline Leavitt told reporters that Mr Ford’s initial comments were “egregious and insulting” and said Canada would be “very wise not to shut off electricity for the American people”.

Mr Trump was determined to ensure the US relied on its own domestic electricity, she said.

Another Canadian province, Alberta, gave US officials options to de-escalate the trade dispute, its energy minister told reporters at the CERAWeek energy conference in Houston.

Mr Trump later met with about 100 chief executives of US firms amid evidence that his trade policies could hurt the US economy, threatening to dash a “soft landing” that until recently appeared as the base case and reignite inflation.

Before the gathering, airlines, department stores and other businesses warned that his fast-shifting trade policies are starting to have a chilling effect, with consumers pulling back on purchases of everything from basic goods to travel.

Confidence takes a hit

Ms Leavitt sparred with an AP reporter over the tariffs during a regular briefing after he questioned why Mr Trump was now backing tax hikes in the form of tariffs after pushing for tax cuts.

“Ultimately, when we have fair and balanced trade, which the American people have not seen in decades ... revenues will stay here, wages will go up and our country will be made wealthy again,” she said.

“And I think it’s insulting that you are trying to test my knowledge of economics, and the decisions that this president has made. I now regret giving a question to the Associated Press.”

Investors are bracing for a further round of tariffs on autos as well as tit-for-tat reciprocal tariffs in early April.

Canada and China have retaliated with their own tariffs on US exports, while Mexico stopped short of retaliation after Mr Trump delayed his planned levies on the southern US neighbour.

“This is what a trade war looks like,” said Mr Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center. “Tit-for-tat escalation which can quickly spiral to both sides’ economic detriment.”

The metals tariffs will apply to millions of tons of steel and aluminum imports from Canada, Brazil, Mexico, South Korea and other countries that had been entering the US on a duty-free basis under carve-outs.

Mr Trump has vowed that the tariffs will be applied “without exceptions or exemptions” in a move he hopes will aid the struggling US industries. His promise to double the metals levies on Canada sent some aluminum prices soaring.

Price premiums for aluminum on the US physical market climbed to a record high above US$990 a metric ton on March 11.

Mr Trump’s hyper-focus on tariffs since taking office in January has rattled investor, consumer and business confidence in ways that economists increasingly worry could cause a recession.

A small business survey on March 11 showed sentiment weakening for a third straight month, fully eroding a confidence boost following Mr Trump’s Nov 5 election victory, and a survey of households by the New York Federal Reserve on March 10 showed consumers growing more pessimistic about their finances, inflation and the job market. REUTERS