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US commerce secretary Howard Lutnick has said that all goods compliant with the sweeping 2020 deal with Canada and Mexico will probably be granted a one-month reprieve from tariffs, in a major climbdown for President Donald Trump’s aggressive trade agenda.
The second policy shift in two days came after Trump said on Wednesday that carmakers compliant with US-Mexico-Canada Agreement would be granted a month-long carve-out from the 25 per cent tariffs his administration imposed on America’s two biggest trading partners earlier this week.
The imposition of the levies on Tuesday prompted a turbulent market reaction after Canada and Mexico announced retaliatory measures. Earlier this week, all the S&P 500’s post-election gains were erased, before a slight recovery.
“It’s likely that it will cover all USMCA-compliant goods and services, so that which is part of President Trump’s deal with Canada and Mexico, are likely to get an exemption from these tariffs,” Lutnick told CNBC on Thursday. “The reprieve is for one month.”
US goods and services trade under the USMCA totalled about $1.8tn in 2022, according to the US Trade Representative.
Lutnick’s comments came just 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 due at least in part to companies rushing to stockpile goods before the imposition of tariffs.
“My expectation is the president will come to the agreement today that USMCA-compliant goods will not have a tariff for the next month until April 2,” Lutnick said.
He added that he hoped Canada and Mexico would by then have made sufficient progress on Trump’s demand that they crack down on trafficking of the deadly opioid drug fentanyl.
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 to retaliate against taxes, levies, regulations and subsidies that Washington considers unfair.
Lutnick’s comments sparked gains in the Canadian and Mexican currencies. The Canadian dollar rose 0.4 per cent to C$1.4282 against the US dollar. The Mexican peso rallied 0.7 per cent to 20.24 against the dollar.
US stocks also sharply cut their losses on Thursday morning, with the broad S&P 500 down about 0.8 per cent from a fall of as much as 1.6 per cent.
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