Trump pauses tariffs on most Canadian, Mexican imports
U.S. President Donald Trump on Thursday (March 6, 2025) unveiled a temporary rollback to steep tariffs targeting Canada and Mexico, providing some reprieve to companies and consumers after sustained blowback on global markets.
After his sweeping tariffs of up to 25% on the two U.S. neighbours took effect Tuesday (March 4, 2025), stock markets tumbled,
As economists warned that blanket tariffs could weigh on U.S. economic growth and raise inflation in the near-term.
Investors are worrying about the potential impact of the Trump administration’s big tariffs on the U.S. economy.
The market is starting to see that there are a lot of U.S. companies dependent on exports and imports.
If trade numbers decrease overall, that’s probably not good for the economy.
Though the Republican President dismissed suggestions that his trade decisions were linked to market turmoil, he decided to pause the levies for trade with Canada and Mexico that falls under a regional pact.
Mr. Trump also lowered the new 25% levy on Canadian potash, a key element of fertilizer which U.S. officials said their country does not produce much of.
The tariff halt – which lasts until April 2 came one day after the White House also announced a temporary reprieve for automakers.
But he added that major moves would be unveiled on April 2, the date that he has promised updates on “reciprocal tariffs” to remedy practices Washington deems unfair.
At that point, Canadian and Mexican goods could still face levies.
The U.S. president also said he would not modify tariffs for steel and aluminium, which are due to take effect next week.
Economic reality
For Scott Lincicome, vice president of general economics at the Cato Institute, Mr. Trump’s easing of tariffs on Mexico was “a recognition of economic reality.”
The move was an acknowledgment that tariffs disrupt supply chains, that the burden of levies fall to consumers, and “that the market doesn’t like them and certainly doesn’t like the uncertainty surrounding them,” Mr. Lincicome told AFP.
Since taking office for his second term in January, Mr. Trump has made a series of tariff threats on allies and adversaries alike.
Structural issues with American economy
The US economy relies heavily on trade, and that’s part of its structural construct in the post World War-II era.
This is because the American economy consumes more goods than it produces domestically.
As a result, its imports are almost always higher than its exports, resulting in a trade deficit where it imports more than it exports.
Why is that so? When a country consumes more goods than it produces domestically at full employment, it needs to source the additional goods from other countries through imports.
And that is resulting in a high trade deficit.
This trade deficit is a point of contention for Trump, which he’s used as the trigger for the imposition of tariffs on countries around the world.
But what this simplistic assumption glosses over is the fact that till the time America consumes more than it produces, it will have a deficit with a lot of countries.
This is also triggered by the fact that the labour costs in America are high, and so it does not merit economic logic for US workers to be producing this efficiently in the country, like say garments or consumer durables.
So, other countries that have relative efficiencies in these sectors, primarily due to labour or raw material advantages, are more effective at producing these goods and shipping them to the US.
The evolving labour productivity issue, and a shift of comparative advantage to developing nations explain the loss in manufacturing jobs in the US, and tariffs are unlikely to fix that fundamental issue.
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