Market Wire: Tensions Ease Somewhat As US Announces Partial Tariff Exemptions on Canada and Mexico

The Trump administration will pause 25-percent tariffs on Mexican and Canadian products covered by the United States-Mexico-Canada Trade Agreement until April 2, according to a statement released by Commerce Secretary Howard Lutnick. “Hopefully Mexican and Canada will have done a good enough job on fentanyl that this part of the conversation will be off the table” in April said the Secretary.

The White House believes that roughly half of Mexico’s shipments to the US would qualify for the exemption, while around 38 percent of Canada’s goods would qualify*. From what we can tell, potash and Canadian energy products will remain subject to a 10 percent duty, while other non-exempt categories will be taxed at 25 percent.

On Tuesday, the administration began hitting US companies with 25 percent taxes on goods imported from Canada and Mexico—with Canadian energy products charged at a 10-percent rate—and increased levies on goods from China to 20 percent.

The decision comes after markets reacted negatively to Trump’s actions, with equity indices selling off, Treasury yields dropping, and the US dollar retreating over the last three trading sessions. Business groups expressed their disapproval, with major automakers meeting with the president yesterday to outline the negative consequences, and technology companies scheduling time to do the same next week.

We’re unsure as to how this concession will impact negotiations with leaders in Ottawa and Mexico City, given that the administration still intends to enact a massive increase in tariffs against both countries. Canadian Prime Minister Justin Trudeau has reportedly expressed an unwillingness to meet the US “in the middle,” threatening to keep Canadian retaliatory measures in place until all American tariffs have been removed. Mexican president Claudia Sheinbaum has kept her cards closer to her chest, but could take a similar position when she announces her country’s reciprocal steps on Sunday.

The loonie is trimming the day's gains as we go to print, while the Mexican peso is holding steady. We think some degree of market relief is justified, but the path forward remains incredibly uncertain and littered with potential landmines. Financial assets and currencies in all three North American economies should trade with significant risk discounts for now.

* Although they seem directionally correct, we have not verified these estimates