A lot has happened since last Wednesday, April 2nd, "Liberation Day," which we analyzed in our last update.
Perhaps most notably, this includes a chaotic (sort-of) walk-back on global tariffs one week later on Wednesday, April 9th, in which President Trump instituted a 90-day pause on the 'Liberation Day' (near) global tariffs that had come into effect mere hours earlier. The 90-day pause nonetheless concretized a baseline (near) global 10% tariff rate on imported goods, while maintaining the sectoral tariffs, and even increasing tariffs on Chinese imports to 145%.
Also, Treasury Secretary Scott Bessent announced that Mexico and Canada would also suddenly be subject to the 10% threshold. Within the hour of the Bessent announcement, however, the status quo had returned. As of Thursday, at least, Canada and Mexico continue to only be subject to 25% duties on steel and aluminum, on some auto parts, and on non-CUSMA compliant goods. That is, until future threatened tariffs on other sectors, including pharmaceuticals and lumber, are ever confirmed by the Trump administration.
In this Canada – Trump Administration 2.0 Update, Alex Steinhouse of the Fasken Government Relations and Political Law team dives a little deeper into what happened in Washington this past week.
A (sort-of) "Walk-Back"
On Wednesday, President Donald Trump paused the new tariff rates on imports from most US trade partners to 10% for 90 days to allow trade negotiations with those countries to occur. In characteristic fashion, President Trump announced the policy shift though a Truth Social post hours after goods from nearly 90 nations became subject to his so-called reciprocal tariffs.
Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent took credit for the partial pause and said they co-wrote this Truth Social Post with the President from the White House, following the tumultuous week on global markets and considerable lobbying efforts from business leaders and banking executives.
The Wall Street Journal reports that Bessent in fact persuaded the President on Sunday to take the pause to negotiate with trading partners. It is unclear why the announcement then only occurred on Wednesday.
At the same time, the President also said he was raising the tariffs on Chinese goods to 125% "effectively immediately", after China said it would increase its tariff rate on American imports to 84% and had also pledged not to back down from this trade war. Then on Thursday, the White House clarified that the President had, in fact, raised the tariffs on Chinese goods to a total of 145% since taking office. Meanwhile Mr. Bessent said, "So what?" when told of Chinese retaliatory measures.
On Friday, China announced it would raise its retaliatory tariff on US goods to 125%, effective Saturday. However, Beijing signaled it "wouldn't continue to match any levy increases by the US, saying American imports are no longer marketable under current levels." Beijing said if the U.S. continues to put additional tariffs on Chinese goods, it will disregard them. "Even if the US continues to impose higher tariffs, it would be economically meaningless and would become a joke in the history of the world economy," Beijing said.
In a statement later on Wednesday at the White House, President Trump explained his decision to step back, saying, "Well, I thought that people were jumping a little bit out of line [...] They were getting yippy, you know, they were getting a little bit yippy, a little bit afraid." The President also expressed his concern over the plummeting US Treasury bond market on Tuesday night: "I saw last night where people were getting a little queezy." He went on to say he had been mulling pausing tariffs over the last few days, but it "probably came together early [Wednesday] morning, fairly early [that] morning." He said, "You have to be flexible."
Prior to the Truth Social post, senior Trump officials had been dismissing concerns with the tariffs strategy, including US Trade Representative Jamieson Greer, who had the unenviable task of having to defend the strategy live before a House Committee when 20 minutes in, the partial pause had been brought to his attention. Mr. Greer said he hadn't been informed of the change in strategy before it was announced but was aware that it was a policy option. Of interest to a Canadian audience, during his appearance, Mr. Greer defended CUSMA, as he asserted that it still provides protection from many tariffs for the three countries.
President Trump has also privately acknowledged that his plan for tariffs could "push the US economy into a recession but [he] wanted to avoid a depression."
However, to put the pause in its larger context, the effective tariff rate on global imports into the US has nonetheless increased, according to one analysis, by 21 percentage points since January (this was when the tariffs on Chinese goods were set to 125%). Bloomberg suggests the average US tariff rate went from 27% to 24% after Trump's initial Wednesday announcement. Meanwhile, industry will continue to face the same volatility that led to the market destabilization to begin with. These realizations, and the increasingly disproportionate share of the increase being brought to bear on China, were once more impacting the markets on Thursday.
Former Trump Vice-President Mike Pence, while expressing relief about the partial pause, has raised concerns for Republican midterm elections fortunes should the baseline 10% global tariff, and sector-specific tariffs remain. The New York Times reports that Wednesday's announcement had calmed some Republican nerves, but much uncertainty as to the political viability of the Trump trade approach remains within his party's elected members.
Path Forward
Ostensibly, the next 90 days should see countries attempting to convince the Trump administration to drop or reduce as many of the tariffs as possible. That process already began in earnest last week; on Tuesday night in a speech to Republican Congress members, President Trump boasted, "These countries are calling us up, kissing my ass. They are dying to make a deal. 'Please, please, sir, make a deal. I'll do anything. I'll do anything, sir.'" President Trump further boasted on Wednesday that more than 75 countries have contacted his administration seeking to discuss their new tariff rates.
National Economic Council director Kevin Hassett, drawing a distinction between the reach outs and active negotiations, said early Thursday morning that the Trump administration "has already got offers on the table for more than 15 countries for trade deals." The administration is considering the offers and "deciding whether they're good enough to present to the president," he said on Fox & Friends. He declined to say which countries made offers.
Then later on Thursday on CNBC, Hassett suggested they were "closing in" on 20 potential deals. "There's a big inventory of deals that are right close to the finish line [...] There's a bunch of offers that are really sensible offers, and they're coming from our top trading partners," he said. "It's some of the most progress in trade negotiation that I think, probably the most progress that we've ever seen [...] So, I think that this system that the President set up to say, hey, we're serious about negotiation. We're serious about reciprocity," the White House economist continued. "If you guys come down, we'll come down to do that."
To that end, the European Union, for instance, has now delayed its retaliatory tariffs of $23 billion in US goods for the duration of the 90 days pause, which had only just been approved on Wednesday, in order "to give negotiations a chance," European Commission President Ursula von der Leyen said on Thursday. "If negotiations are not satisfactory, our countermeasures will kick in. Preparatory work on further countermeasures continues. As I have said before, all options remain on the table."
European Union Trade Commissioner Maroa `efčovič will meet with American officials in Washington on Monday. The EU "is willing to find win-win outcomes, mutually beneficial deals, with our American counterparts to avoid tariffs and to avoid any harmful escalation," an EU spokesman said Friday.
Meanwhile, other countries, including Taiwan, India, Japan, United Kingdom, Australia and Vietnam have indicated they are working with the US to avert or reduce tariffs, with offers to remove all tariffs on American goods. Israel (in a last-minute bid just prior to 'Liberation Day') and Zimbabwe have already announced the suspension of all tariffs on American goods.
However, Kevin Hassett said on CNBC that the expectation is for the 10% universal baseline tariff to remain in place over the long term. "It would take some kind of extraordinary deal to go below there," he said.
Two Academic Justifications
In last week's update, we dissected why, despite what President Trump had asserted on 'Liberation Day' in the Rose Garden, the global 'reciprocal' tariffs were not in fact reciprocal.
In that same vein, McMaster University Professor Pau Pujolas made headlines this week when he was cited in a speech on Monday by Stephen Miran, a key advocate of the Trump administration's comprehensive trade plan, in an effort to justify 'Liberation Day.'"
Mr. Miran, who is chair of the White House Council of Economic Advisers, said in remarks to a conservative think tank that the US was "well-positioned to benefit from trade negotiations or disputes" given its trade imbalance with China. In so doing, he quoted a 2024 paper by Professor Pujolas and his co-author, Jack Rossbach: "In the presence of large trade deficits, optimal tariffs are higher."
While Professor Pujolas says that statement is "technically accurate," it does not tell the whole story. "Yes, if tariffs are carefully designed and targeted, the US can, in theory, improve its position. But the kinds of tariffs being used now are not what our model describes [...] We didn't write the paper as an encouragement for any country, in particular the US, to start the trade war. That was never intended."
Professor Pujolas said his research found that had the US applied tariffs differently in 2018 – targeting the right sectors, at the right magnitudes – it could have extracted modest welfare gains. "But even then, those gains would have come at the expense of China," he said. "The overall effect would have been negative for the world."
The paper also concluded that both countries would be better off under free trade. "We find that the best outcome is to lower tariffs altogether," Professor Pujolas said. "The world as a whole gains."
Meanwhile, MSNBC host Rachel Maddow put forward that President Trump "came up with the idea" of his international tariffs plan on his 2016 Presidential campaign after the circulation of a "fake memo from a fake person with a fake email address" that had argued that the President could "ride the tariffs to victory."
The memo in question was purportedly written by Ron Vara. However, Vara it turns out does not exist. Peter Navarro, the White House senior trade advisor, in fact invented the economics expert "Ron Vara", and has regularly cited him in six of his books, including "Death by China." Maddow says Ron Vara is an anagram for Navarro.
This news comes during the week in which Elon Musk launched a social media campaign against Navarro, calling him "truly a moron" and "dumber than a sack of bricks" over comments Navarro made about Tesla's manufacturing practices. The coup de grace? "Navarro should ask the fake expert he invented, Ron Vara." The White House's response? Press Secretary Karoline Leavitt acknowledged that Musk and Navarro are "two individuals who have very different views on trade and on tariffs" but "boys will be boys, and we will let their public sparring continue."
In a further hit to Navarro this week, Politico is reporting that he has been sidelined in the White House, with Treasury Secretary Bessent now at the 'helm' of the trade team, with Mr. Lutnick recast into the role of 'bad cop.'
US Ambassador to Ottawa Confirmed by Senate
Peter Hoekstra has now been confirmed as Ambassador to Canada by the Senate, in a 60 to 37 vote. No word yet on when he will assume his new duties. Mr. Hoekstra, previously a long serving member of Congress from Michigan and the former ambassador to the Netherlands during Trump 1.0, replaces Biden's ambassador, David Cohen. During a Senate confirmation hearing last month, Mr. Hoekstra had confirmed that "Canada is a sovereign state," in response to questions about Trump's 51st state threat.
Canada's Response
As things currently stand, Canada and China appear to stand alone in retaliating against American tariffs.
For that reason, Steve Verheul, Canada's former lead trade negotiator on CUSMA and a current member of the Prime Minister's Council on Canada-US relations, said in remarks to the Broadbent Institute's Progress Summit, that Ottawa may be on its own in its fight against Trump's tariffs. "Retaliation can be a useful tool, and it's unfortunate that most of the rest of the world didn't see it that way." He added, "If there had been a more coordinated response from countries around the world, then we could have seen this fall away even more quickly." He put forward, however, that if - after the 90-day pause ends - the 'reciprocal' tariffs are reimposed, other countries may then decide to retaliate.
In this light, Prime Minister Mark Carney is pausing his campaign for a third time on Friday, to convene another meeting of the Cabinet committee on Canada-US relations and National Security.
The Prime Minister said on the campaign trail on Thursday that President Trump's pause is "a welcome reprieve for the global economy," but "the impacts of other tariffs and the threat of future tariffs are already being felt around the world and here at home [...] So, the stakes have never been higher for our economy."
Mr. Carney reiterated that in his conversation with the President, they agreed to begin negotiations on a new trade and security arrangement "immediately following the election" should the Liberals retain government. "We will ensure that the ground for those negotiations is constructive while we stand firm with our workers, protecting our workers and building this economy."
The Prime Minister also spoke with European Commission President von der Leyen on Thursday, discussing the tariffs and stressing the "importance of working together to deepen economic ties and promote economic security for people on both sides of the Atlantic."
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