Donald Trump briefly threatened to escalate his trade war with Canada by doubling his planned tariffs on its steel and aluminium from 25% to 50%.
The US president stepped back from his order after the provincial government of Ontario rowed back on a plan to charge 25% more for electricity it supplies to over 1.5 million American homes and businesses.
Canada’s most populous province provides electricity to Minnesota, New York and Michigan.
As a result, White House trade adviser Peter Navarro said Mr Trump would not double steel and aluminium tariffs – but the federal government still plans to place a 25% tariff on all steel and aluminium imports from Wednesday.
Ontario’s response
In his initial response to Mr Trump’s threat, Ontario’s premier Doug Ford said he would not back down until the US leader’s tariffs on Canadian imports were “gone for good”.
But he later suspended the change temporarily, saying “cooler heads need to prevail” and he was confident the US president would also stand down on his plans.
Meanwhile, Canada’s incoming prime minister Mark Carney said he will keep other tariffs in place until Americans “show respect” and commit to free trade.
Mr Carney called the new tariffs threatened by Mr Trump an “attack” on Canadian workers, families and businesses.
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Why is Trump threatening tariffs?
A worldwide 25% tariff on steel and aluminium is due to come into effect on Wednesday as a way to kickstart US domestic production.
Separate tariffs on goods from Mexico and Canada covered by a previous trade agreement (the US Mexico Canada, or USMCA deal) were delayed by a month to 2 April.
President Trump seems to bear a particular grudge against Canada because of what he sees as rampant fentanyl smuggling and high Canadian taxes on dairy imports, which penalise US farmers.
He has called for Canada to become part of the United States as its “cherished 51st state” as a solution, which has angered Canadian leaders.
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What’s the impact of US tariffs?
Economic impact
Mr Trump’s turnaround comes after markets fell in response to his threat of doubling tariffs.
The stock market has fallen over the last two weeks and Harvard University economist Larry Summers put the odds of a recession at 50-50.
“All the emphasis on tariffs and all the ambiguity and uncertainty has both chilled demand and caused prices to go up,” the former treasury secretary for the Clinton administration posted on X on Monday.
“We are getting the worst of both worlds – concerns about inflation and an economic downturn and more uncertainty about the future and that slows everything.”
Investment bank Goldman Sachs revised down its growth forecast for this year from 2.2% to 1.7% and moderately increased its recession probability to 20% “because the White House has the option to pull back policy changes if downside risks begin to look more serious”.
Mr Trump has tried to reassure the American public that his tariffs will cause a bit of a “transition” to the economy as taxes spur more companies to begin the years-long process of relocating factories to the US to avoid tariffs.
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Trump refuses to rule out recession
Mr Trump did not rule out the possibility of a recession during an interview with Fox News on Sunday, where he said: “I hate to predict things like that.”
On Tuesday, he was asked about a potential recession and said “I don’t see it at all” and claimed the US is “going to boom”.
On Monday, the S&P 500 stock index fell 2.7% and on Tuesday it was around 10% below its record set last month.
Content Source: news.sky.com