Trump partly waives 25% tariffs on Canada, Mexico until April 2

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U.S. President Donald Trump granted Canada and Mexico a partial reprieve from punishing 25-per-cent tariffs until April 2, the latest shift in a constantly changing trade policy that has left Canadian businesses, Ottawa and the provinces unsure of what comes next.

Mr. Trump signed an executive order on Thursday temporarily removing tariffs that he imposed only two days earlier. The order applies to goods from Canada that are compliant with the United States–Mexico–Canada Agreement (USMCA). This covers a significant portion of Canadian exports to the U.S.

The order also lowers the tariff on potash, which is used in fertilizer, from 25 per cent to 10 per cent. This is in line with the lower tariff rate Mr. Trump placed on energy and critical-minerals imports from Canada.

Finance Minister Dominic LeBlanc, who has been in regular discussions with White House officials about the tariffs, said in a social-media post that Canada won’t proceed with a second wave of tariffs on some $125-billion worth of U.S. goods, “while we continue to work for the removal of all tariffs.”

Canadian tariffs on around $30-billion worth of U.S. goods, imposed earlier this week, will remain in place, Mr. LeBlanc added in an interview on CBC News.

“Hopefully we’re lining up a conversation and a discussion with the Americans that’s much more coherent,” he said. “We want to get to a position that we were in two weeks ago, where there are no tariffs applied to the trade between Canada and the United States. It’s a first step. It’s an important step, but we’re not at the end of the road.”

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Speaking to reporters on Thursday afternoon, Mr. Trump said he signed the order after talking to the heads of America’s large auto manufacturers. He said the order gives the companies, including Ford, General Motors and Stellantis, a short-term window to adjust their supply chains.

“It’s just a modification short term, because I didn’t want to hurt the American, it would have hurt the American car companies if I did that,” he said.

He said he plans to push ahead with 25-per-cent tariffs on steel and aluminum, scheduled to take effect on March 12, and will move forward with “reciprocal” tariffs against all other countries on April 2.

These threatened tariffs would differ from the tariffs imposed, then partially lifted, this week, which the President has said are in response to Ottawa and Mexico City not doing enough to combat fentanyl trafficking and illegal migration. Ottawa has rejected Mr. Trump’s allegations about Canada being a major source of fentanyl reaching the United States.

Mr. Trump’s decision to pause tariffs on his neighbours followed phone calls with Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum.

The President’s erratic trade measures have caused huge uncertainty for North America’s highly integrated economy, sending jitters through U.S. stock markets. The S&P 500 fell another 1.8 per cent on Thursday, having fallen almost 4 per cent since Monday. Mr. Trump said that his latest flip-flop had nothing to do with the market.

“I’m not even looking at the market, because long term, the United States will be very strong with what’s happening here,” he said.

As it stands, around 40 per cent of Canada’s exports to the United States are formally in compliance with the USMCA.

Many other exports are technically compliant with the USMCA rules that specify how much of a product needs to be manufactured in Canada, Mexico or the United States to cross the border duty free. However, companies may not have done the required paperwork because of the compliance costs, and because the tariffs their products face are already close to zero under Most Favoured Nation rules that apply to imports from all countries.

“As a general statement, where the MFN rates are zero or very low, there are many goods that could otherwise be USMCA compliant, that aren’t making those claims because the juice isn’t worth the squeeze,” said Jesse Goldman, partner at the law firm Osler, Hoskin & Harcourt LLP.

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These companies will likely need to become complaint to be eligible for the one-month reprieve, he said. Many will be able to make this shift easily, as it’s mostly a matter of filling out paperwork and confirming the origin of inputs. However, companies that rely on inputs from other countries may have a harder time becoming USMCA compliant.

“It’s that in-between zone where there’s a risk for Canadian business. If you can’t meet the USMCA [origin] rules, but for the 25-per-cent tariff you consider it a Canadian good, then you’ve got a problem,” Mr. Goldman said.

The Trump administration is still planning to impose another wave of “reciprocal” tariffs on trading partners on April 2. These are meant to match the tariffs other countries place on U.S. goods, as well as non-tariff barriers that supposedly disadvantage U.S. companies. In the case of Canada, Mr. Trump has pointed to dairy products, lumber and the digital-services tax Ottawa imposed last year.

It’s not clear whether the 25-per-cent duties that are paused until then will layer on top of whatever Washington announces in April.

Matthew Holmes, chief of public policy for the Canadian Chamber of Commerce, said every day of unimpeded trade is a “good day for Canada.”

“But it’s certainly not a day to celebrate with the clouds still hanging over us in terms of tariff threats,” he said in an interview.

With some goods now exempt from tariffs and others not, Mr. Holmes said the carveouts and increased complexity in the trading relationship between Canada and the U.S. drive a wedge between the two countries’ economies.

“I don’t think we can take our retaliation and our response off the table until these threats go away again. It comes down to trust and uncertainty,” he said.

A large portion of Canada’s and Mexico’s trade with the United States happens tariff-free, although there are outliers.

Within the auto sector, for example, the proportion of trade occurring outside the free-trade agreement has increased since North American auto-content rules were tightened under the USMCA compared to its predecessor, the North American free-trade agreement. In effect, a small but growing proportion of Canadian and Mexican companies have been choosing to pay a relatively low 2.5-per-cent Most Favoured Nation tariff applied to non-USMCA autos coming into the U.S., rather than comply with the stricter rules-of-origin.

In 2019, only 0.5 per cent of auto imports to the U.S. from Mexico and Canada paid MFN tariffs. That rose to 8.2 per cent in 2023. For auto parts, the proportion has more than doubled from 9.3 per cent in 2019 to 20.5 per cent in 2023.

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The vast majority of these non-USMCA-compliant autos come from Mexico, according to U.S. data. According to the Canadian Vehicle Manufacturers’ Association, more than 98 per cent of passenger cars made in Canada enter the U.S. duty free in compliance with USMCA content standards.

Canadian companies that aren’t compliant with the USCMA will likely be scrambling to get their documents in order, said Sabrina Bandali, a partner with the law firm Bennett Jones LLP.

This will be easier for some businesses than others, depending on the types of products they sell and how much in-house trade expertise they have, she said. But all companies will continue to suffer from the unpredictability of U.S. trade policy.

“Even for those companies that might get 30 days of breathing room where they don’t have to pay these tariffs, they’re still fundamentally dealing with uncertainty,” she said.

With a report from Nojoud Al Mallees