After a sharp downturn in U.S. markets, President Donald Trump is preparing to ease certain tariffs on Canadian and Mexican imports.
U.S. Commerce Secretary Howard Lutnick told CNBC that goods and services adhering to the United States-Mexico-Canada Agreement (USMCA) would likely receive a one-month exemption from the current tariffs. “It’s probable that all USMCA-compliant goods and services—those tied to President Trump’s trade deal with Canada and Mexico—will be exempt from these tariffs,” Lutnick stated, estimating the change would impact over 50% of goods imported from Mexico and Canada.
The USMCA, which replaced NAFTA, governs over $1.8 trillion in trade, including cars, textiles, and agricultural products. The agreement, signed during Trump’s first term, came into force in 2020.
The announcement followed a rocky start to the trading day, as Wall Street suffered significant losses due to fears surrounding both the global trade war and a potential AI-fueled market bubble. The Nasdaq Composite fell 2%, the S&P 500 dropped 1.6%, and the Dow Jones Industrial Average slid 1.4% during the morning session.
Lutnick’s remarks offered some relief to markets, leading to a partial recovery, though indexes remained in negative territory.
“Additional Pressure on the U.S.”
Rabobank strategist Matthew Cairns warned that a prolonged trade war could weigh heavily on the U.S. economy: “Retaliation from the targeted countries will add further pressure, which is not a good outlook for equities or earnings growth. U.S. households are likely to end up poorer.”
In addition to trade uncertainty, investors are also reacting to broader financial market turmoil. A global bond sell-off accelerated after Trump’s tariffs and military aid suspension to Ukraine prompted significant political and fiscal shifts in Europe.
Germany’s Response
Germany’s likely next chancellor, Friedrich Merz, announced plans to overhaul the country’s fiscal rules, proposing a €500 billion fund for defense and infrastructure. On Wednesday, 10-year German bund yields soared at their fastest rate since 1990, reflecting the rapidly changing fiscal environment.
Lagarde Calls for EU Strength
In response to Trump’s trade threats, European Central Bank (ECB) President Christine Lagarde urged the European Union to adopt a position of strength. The ECB lowered its benchmark interest rate from 2.75% to 2.5%, and Lagarde stressed the importance of negotiating from a solid footing.
“Tariffs, especially those that trigger retaliation, are not beneficial. They generally have a net negative effect,” Lagarde said. She cautioned that escalating tariffs could harm both the U.S. and Europe, as Trump’s threats of reciprocal levies on EU goods continue to loom.
