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Donald Trump’s administration has backtracked further from its threat to impose sweeping 25 per cent tariffs on Mexico and Canada, in a major climbdown from its aggressive trade agenda.
In the second U-turn in two days, the US president signed an executive order saying that all goods that met the rules of a 2020 free trade deal with the US’s neighbours would be granted a one-month reprieve from the duties.
On Wednesday, Trump had said carmakers compliant with the USMCA would be granted a month-long carve-out.
The policy shift came after Trump doubled down on his tariffs plan in his address to Congress this week, saying: “There will be a little disturbance, but we’re OK with that.”
The levies’ imposition on Tuesday prompted a turbulent market reaction after Canada and Mexico announced plans to retaliate. All the S&P 500’s post-election gains have been erased following further declines on Thursday.
Howard Lutnick, Trump’s commerce secretary, said on Thursday that movements in the stock market would not drive US trade policy.
“The fact that the stock market goes up or down a half per cent on any given day is not the driving force of our outcome,” Lutnick said.
He added that he wanted to drive “factory production in America.”
“We want employment to blossom in America. We want to train the new AI industrial revolution to happen in America,” Lutnick said.
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The Trump administration’s shift is the latest in a chaotic policy rollout that has shaken America’s trade partners. According to the US trade representative, US goods and services trade under the USMCA totalled about $1.8tn in 2022.
Washington’s latest move came hours after data showed the US trade deficit swelled in January to a record $131.4bn, from a $98.1bn deficit in December. Economists said the increase was partly because of companies rushing to stockpile goods before the imposition of tariffs.
On Thursday, Lutnick said that he hoped Canada and Mexico would have made sufficient progress on Trump’s demand that they crack down on trafficking of the deadly opioid drug fentanyl by the planned end of the tariff reprieve on April 2.
If so, he said, “this part of the conversation will be off the table and it will move just to the reciprocal tariff conversation”.
Trump has said he plans to impose so-called reciprocal tariffs on trading partners from April 2 to retaliate against taxes, levies, regulations and subsidies that Washington considers unfair.
Lutnick’s comments sparked gains in the Canadian and Mexican currencies. Canada’s dollar rose 0.4 per cent to C$1.4282 against the greenback. Mexico’s peso rallied 0.7 per cent to 20.24 against the dollar.
US stocks were volatile on Thursday, with the S&P 500 trading down 1.5 per cent in early afternoon trading in New York and the tech-heavy Nasdaq Composite trading 2 per cent lower.