Rollercoaster Day in US-Canada Trade War Leaves Markets on the Doorstep of Correction

Whatever economic history textbooks look like in 100 years — floating solar-powered screens, digital files that can be downloaded onto your brain’s hard drive, or maybe just books — they could end up referring to Tuesday as a major escalation, or a major de-escalation, in the Great North American Trade War of 2025.

After tit-for-tat threats triggered an S&P 500 selloff that dragged the blue chip index down into correction territory during trading hours, cooler heads prevailed in the afternoon, when the US and Canada agreed to sit down and take a look at their shared free trade agreement.

Unnerves of Steel

Traders got their morning jolt at the office Tuesday not from the usual Cup of Joe, but from a Post of Donald. 

President Trump took to his Truth Social platform and threatened to double tariffs on Canadian aluminum and steel imports to a staggering 50%. It came in response to Ontario Premier Doug Ford, the leader of Canada’s largest province, who retaliated against Trump’s blanket 25% tariffs on his country a day earlier by slapping a 25% surcharge on electricity exports to the US.

But then the politicians stood down, the market regained some of its losses, and the US likely avoided a heavy metal pain: 

• The White House said it won’t double the tariffs on aluminum and steel, leaving them at 25%, and Ford said he would pause the electricity surcharge. US Commerce Secretary Howard Lutnick, Canadian Finance Minister Dominic LeBlanc and Ford announced they will meet tomorrow to renegotiate their portion of the United States-Mexico-Canada free trade agreement known as USMCA, which applies to the two nations’ $762 billion annual exchange of goods and services.
• The S&P 500 closed the day down 0.76%, out of the psychologically perilous correction territory. Had Trump gone through with doubling the tariffs, things could have been much worse: America’s northern neighbor supplied more than half, or 2.7 million metric tons, of its aluminum last year. The CEO of US aluminum manufacturing giant Alcoa warned last month that even the 25% tariff on the metal that Trump still plans to impose could cost America 10,000 jobs.

According to Commerce Department data, the US imported $11.4 billion of aluminum and $7.6 billion worth of iron and steel from Canada last year (the latter two are counted together).

Who’s Next? The automobile industry. Trump said, in his furious morning post, that he will “substantially increase” tariffs on cars imported from north of the border on April 2, and “permanently shut down the automobile manufacturing business in Canada.” Thursday’s summit between Lutnick, Leblanc and Ford became just the starting piston in a metaphorical race to renegotiate USMCA by an April Fool’s Day finish line.