Portugal Colonial - US signals broader tariff reprieve for Canada, Mexico as trade gap grows

Commerce Secretary Howard Lutnick told CNBC: "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."

He added that the reprieve would be for one month, a day after the White House gave automakers temporary relief too from the levies that hit everything from lumber to avocado imports.

But after a month, Canadian and Mexican goods could still face reciprocal tariffs, Lutnick told CNBC, with Trump promising an announcement on April 2.

Trump's 25-percent tariffs on US imports from Canada and Mexico -- with a lower rate for Canadian energy -- kicked in Tuesday, sending global markets downward and straining ties between the neighbors.

Ottawa swiftly announced retaliatory levies, while Mexican President Claudia Sheinbaum similarly promised countermeasures.

On Thursday, Canadian Prime Minister Justin Trudeau warned that Ottawa and Washington would be in a trade war "for the foreseeable future," saying his country would not back down until US tariffs were fully lifted.

Since taking office in January, Trump has made a series of tariff threats on allies and adversaries alike, imposing levies on Canada, Mexico and China over illegal immigration and fentanyl concerns.

Canada contributes less than one percent of fentanyl to the United States' illicit supply, according to Canadian and US government data. But Trump has shrugged off these figures.

- Record deficit -

Trump has referred to tariffs as a way to raise government revenue and remedy trade imbalances and practices Washington deems unfair.

This came as the US trade deficit surged to a new record in January according to government data Thursday, as imports spiked while tariff worries flared in the month of Trump's inauguration.

Trump returned to the White House with pledges to ease cost-of-living pressures for voters, but on the campaign trail he also raised the possibility of sweeping levies across US imports.

The overall trade gap of the world's biggest economy ballooned 34 percent to $131.4 billion, on the back of a 10 percent jump in imports for the month, said the Commerce Department.

This was the widest deficit for a month on record, dating back to 1992, and the expansion was more than analysts anticipated.

Trump said on social media that the US trade gap was massive, adding: "I will change that!!!"

The latest figures came after the US economy saw its goods deficit hit a fresh record too for the full year of 2024 -- at $1.2 trillion.

In January, imports came in at $401.2 billion, some $36.6 billion more than the level in December, Commerce Department data showed.

US exports rose $3.3 billion between December and January to $269.8 billion.

On Thursday, the International Monetary Fund warned Trump's tariffs could have "a significant adverse economic impact" on Canada and Mexico.

- Tariff jitters -

Analysts say the US deficit was likely bolstered by gold imports.

But "stripping out this impact, all other imports rose 5.5 percent, indicating front-loading of shipments was in full swing," said Oxford Economics senior economist Matthew Martin.

This refers to a tendency for businesses to try and get ahead of additional costs from potential tariffs, and possible supply chain disruptions.

Economists at Pantheon Macroeconomics said of the surge in gold imports: "Tariff threats are reportedly prompting a mass repatriation of gold holdings to the US from elsewhere, mostly via Switzerland."

US deficits with other economies were a key focus of Trump's first administration, and at the time he waged a bruising tariffs war with China in particular.

On the campaign trail ahead of November's election, Trump vowed reciprocal tariffs on nations that taxed US-made products, dubbing this the "Trump Reciprocal Trade Act."

Since returning to office, the Republican has launched plans for "reciprocal tariffs" tailored to each US trading partner, to tackle trade practices deemed unfair by Washington, while also threatening tariffs on other imports ranging from semiconductors to autos.

A.F.Rosado--PC