Trump expands tariff exemptions for Canada and Mexico, but tensions remain as businesses face uncertainty

Donald Trump has expanded exemptions to the controversial tariffs he imposed on Canada and Mexico earlier this week. The decision, announced just a day after the duties took effect, comes as financial markets react negatively and trade tensions intensify.

The latest move spares car manufacturers from 25% import levies, a temporary relief welcomed by Mexico’s President Claudia Sheinbaum. In Canada, however, the response has been less enthusiastic. Finance Minister Chrystia Freeland confirmed that Ottawa would hold off on a second wave of retaliatory tariffs, but Prime Minister Justin Trudeau warned that trade tensions with Washington are far from over.

In a phone call with Trump, Trudeau reportedly had a heated discussion in which the US president used profane language multiple times. Speaking to reporters later, Trudeau described the exchange as “colourful” and made it clear that Canada’s ultimate goal remains the complete removal of all tariffs.

Despite the exemptions, Canada’s first round of retaliatory measures—targeting C$30 billion ($21 billion, £16 billion) worth of US goods—remains in place. The uncertainty surrounding the trade dispute has already rattled markets, with the S&P 500 closing down nearly 1.8% on Thursday.

The US president dismissed concerns that his sudden policy reversal was driven by market pressure. “Nothing to do with the market,” he insisted, claiming the long-term impact of the tariffs would strengthen the US economy.

The exemptions apply to goods shipped under the US-Mexico-Canada Agreement (USMCA), covering items such as televisions, air conditioners, avocados, and beef. However, trade officials estimate that roughly 50% of US imports from Mexico and 62% from Canada could still face tariffs. Businesses are now scrambling to reassess their supply chains and determine how much of their trade will be affected.

Ontario Premier Doug Ford has been among the most vocal critics of the tariffs, dismissing the exemptions as insignificant. Earlier in the week, Ford announced plans to impose a 25% tariff on electricity exported to New York, Michigan, and Minnesota—an action that could impact 1.5 million homes and businesses. His latest comments suggest that he sees little reason to back down.

US Treasury Secretary Scott Bessent further inflamed tensions by publicly attacking Trudeau. Speaking at the Economic Club of New York, Bessent mocked the Canadian leader, saying, “If you want to be a numbskull like Justin Trudeau and say, ‘Oh we’re going to do this,’ then tariffs are probably going to go up.” The remarks have only added to speculation that the US may escalate its trade dispute with Canada.

The White House has continued to defend the tariffs, arguing that they are necessary to protect American industry. But economic data paints a more complex picture. The US trade deficit soared by 34% in January, reaching more than $130 billion (£100 billion), as businesses rushed to import goods before the new duties took effect.

Manufacturers in the US are already feeling the consequences. Gregory Brown, who runs BenLee, a company that makes industrial trailers, said he has had to raise prices multiple times in recent weeks due to the uncertainty caused by Trump’s trade policies. While some businesses see the exemptions as a sign that the White House is responsive to economic concerns, others fear that the back-and-forth approach is destabilising markets.

Trump has suggested that the exemptions will remain in place until 2 April, after which his administration is expected to unveil new “reciprocal” tariffs targeting countries worldwide. While businesses continue to adapt to the changing landscape, trade analysts warn that the disruptions could have long-term consequences.

With billions of dollars in trade at stake and both Canada and Mexico preparing their own responses, the economic fallout from Trump’s tariff policies is far from settled.