On Thursday, just a couple of days after placing the tariffs, Trump announced a temporary halt to tariffs on long time trade allies, Mexico and Canada for one month. Half of the goods coming in from Mexico and 38% of the goods from Canada that comply with the North American Trade Deal Trump enacted during his first presidency would be exempted from the 25% tariffs he enacted on Tuesday.
Following the move, Canada's finance minister said they would hold off on a second round of retaliatory tariffs on US products. Canada's prime minister Justin Trudeau announced on Thursday that he had a "colorful" talk with Trump over the tariffs where the President numerously used profane language. He also told reporters that the two countries will likely end up in a trade war and will move towards removing all the tariffs.
On the other hand, Mexican President Claudia Sheinbaum thanked Trump for the temporary stop, and said she had an "excellent" call with Trump adding that the two countries would work together to stop the flow of opioid fentanyl from Mexico and the distribution of guns going the other way.
The next day, Trump threatened new tariffs on Canadian lumber and dairy products. Trump stated that, "Canada has been ripping us off for years on lumber and dairy products," referencing Canada's roughly 250% tariff on US dairy exports. Canadian trade minister Mary Ng denied that they were "ripping" the US off and Trump's reciprocal tariffs are "unjustified."
In response, US senior vice president of trade and workforce policy at the International Dairy Foods Association, Becky Rasdall Vargas thanked Trump holding Canada accountable for their tariffs but fears that the trade war could disrupt trade and lead to higher costs for US dairy farmers, processors, and rural communities. She hopes the countries can come up with a quick solution to prevent further damage.
Trump has been criticizing the Canadian tariffs on US lumber for weeks and claims that the US will be fine without Canada's lumber. However, industry experts argue that that may not be the case. Despite having a large amount of timber (300 billion trees), they explain that the US lacks industrial capacity to produce enough lumber that meets the demand. Tariffs could lead to increased lumber and building costs, worsening the housing affordability crisis.
The back and forth nature of Trump's tariff decision creates uncertainty within the stock market. Investors now have to face unpredictability and the increased risks associated with future profits. The immediate response to Trump's tariffs were a dip in stocks but rose after Federal Reserve Chair Jerome Powell's statement on the positive future of the economy, it rose slightly, highlighting investor sensitivity to economic signals and how quick the market can shift based on government actions.
In this case, Trump's temporary tariff removal and the subsequent threats can be seen as relatively inelastic. For example, lumber is a vital material to make houses and dairy products are often essential to consumer diets. Even if their prices increase, the demand for lumber and dairy products won't decrease as builders still need lumber and people will continue to consume dairy making them less responsive to price changes.
On the other hand, goods such as televisions and air conditioners have high elasticity as consumers can delay their purchase if the price increases. They are more price sensitive and the tariffs could affect their demand.
We may be in for a long ride as Trump's back and forth nature of tariff decisions and the uncertainty within the industry and market is shaping us up for a rough future.
Sources:
https://www.cnn.com/2025/03/07/business/tariffs-trump-canada/index.html
https://www.bbc.com/news/articles/c5y03qleevvo
https://www.bbc.com/news/articles/c4gmjmymg0no
6 comments:
I'm a little confused as to what you mean by "removing all the tariffs" once the two countries end up in a trade war. Shouldn't it be the opposite that would happen?
In regards to Trump's economic policy and plan, I have no clue what it is (I don't do economics for fun). However, I do know that his actions look scary -- tariffs on friends and more tariffs on friends really seem to show that Trump means business (or the lack of it I guess). Unfortunately however, putting tariffs on friends isn't a great way to keep friends friendly and while relations are definitely not going to breakdown between the NAFTA friends, strained relations definitely make other things and other partnerships down the line a lot harder to accomplish.
But that's not a problem Trump's going to deal with. In that regards, you can view this as a market failure as his actions aren't priced according to what they should be (there is a negative externality happening here).
Trump’s back-and-forth on tariffs is creating serious instability for trade partners and industries alike. The continued threats—especially against Canadian lumber and dairy—only add to economic uncertainty. The housing market could take a hit, and increased costs for dairy farmers may hurt rural economies. If Trump wants to hold trade partners accountable, there needs to be a more strategic and consistent approach, not just reactionary measures that leave markets guessing. Beyond the immediate economic consequences, this unpredictability undermines long-term investment and planning for businesses that rely on stable trade policies. Industries dependent on Canadian lumber and dairy imports will face production delays and cost surges, further straining supply chains.
Although the tariffs are on again off again---the economic effects they have been having in the stock market are not, taking longer to bounce back. A big issue with tariffs is just that companies overseas will just raise their prices to counteract the effect---we are paying the tariffs not the companies. Moreover, all this is doing is harming the relationships we have internationally----look no further than American products going on sale in Canada and STILL unsought---or liquor stores not putting on the shelf imported wine/spirits from the states.
The tariffs constant on and off nature is straining the economy and straining the people. It's causing a high rate of uncertainty for the economy and the people within primarily the US but also in other countries that heavily rely on exports and imports for the US. For example, the stock market dropped around 5-7% last week and another 5-7% in the last few days, these hits are hurting the economic status of everyday Americans as uncertainty = weak markets. Furthermore, the tariffs don't really "protect" American business as there isn't a lot, at least in terms of industry and production as most has been moved to foreign producers like China, Canada, and Mexico resulting in higher rates for these companies and therefore higher prices for the consumer. As such the real loser is the American people being forced to pay for the tariffs but not benefiting from the increase in jobs. This is because instead of creating factories, the cheaper route for most companies is to just increase the price to ignore the tariffs and continue to profit.
This just sounds racist to me. It’s clear that Trump just views America as better than other countries, that he thinks it’s a burden to trade with them. He thinks that American manufacturing is so much better that imports from other countries are hurting us rather than helping us. As we discussed in class, trade can be helpful for all countries involved. The US does not have the same resources as any other country and we rely on imports for much of our daily lives. Trump getting into a trade war, trying to break off ties with other countries is really just hurting our country further. The people getting hurt in this scenario are not just the countries who rely on US resources by trading on their own but the pockets of American people who now have to pay higher prices to be able to afford domestic goods. Opening up markets that are not profitable because of the resources in the US is beneficial to the US and having more players in the market helps keep prices down for consumers because of competition.
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