US Stocks waved on US-Canada tit-for-tat tariffs rhetoric

·       On early Wednesday, Wall Street gained as both US and Canada blinked on tariffs and counter-tariffs coupled with softer than expected US core CPI inflation

·       Trump's tariffs and geopolitical stance may isolate the US globally rather than make it great again; Trump needs to create China-like industrial infra to compete

·       But Trump’s reciprocal tariffs strategy may be a blessing in disguise for many EMs like Tariff King India, which needs to ensure cost efficiencies by domestic production echo system

Wall Street Futures crumbled in the last few days on the Trump trade war tantrum and Trumpcession concern. On Tuesday (11th March 25), the trade war tensions between the United States and Canada escalated significantly. President Trump announced a doubling of tariffs on Canadian steel and aluminum imports from 25% to 50%, set to take effect within hours. This move was in response to Ontario Premier Doug Ford's announcement of a 25% surcharge (export tax) on electricity exports to the U.S. in response to Trump’s threat of 250% tariffs on Canadian dairy and agri exports to the US, including lumber. However, later in the day, Ontario Premier suspended its planned electricity surcharges following negotiations with the U.S. administration. In response, President Trump retracted the additional 25% tariff increase, maintaining the original 25% tariffs on Canadian metals as initially planned.

Canadian Prime Minister Justin Trudeau, preparing to hand over power to his successor Mark Carney, criticized the U.S. tariffs and indicated that Canada would respond appropriately. The trade dispute has led to increased aluminum and other metal prices and declining business and consumer confidence. These developments are part of a broader trade conflict initiated on February 1, 2025, when President Trump imposed 25% tariffs on all Mexican and Canadian exports, excluding oil and energy, which were taxed at 10%. The stated objectives were to reduce the U.S. trade deficit and address issues related to illegal immigration and fentanyl trafficking.

In response, Canada imposed 25% tariffs on U.S. goods valued at 30 billion Canadian dollars, with plans to expand this to 155 billion Canadian dollars within three weeks. Mexico also announced tariffs and other economic measures against the U.S. Both countries argue that these U.S. actions violate the United States–Mexico–Canada Agreement (USMCA) ratified in 2020.

Economists warn that these tariffs could disrupt trade between the three countries, destabilize supply chains, and increase consumer prices across North America. Studies suggest that a typical American household could lose about $1,200 in purchasing power due to these measures.

U.S. Tariffs on Steel and Aluminum

Global Tariffs: The U.S. implemented a 25% tariff on steel and aluminum imports from all countries, effective March 12, 2025. This measure affects a wide range of products, including automotive parts, construction supplies, and machinery components, impacting nearly $150 billion worth of goods.

Canadian Tariffs: On 11th March’2025, Trump announced plans to increase tariffs on Canadian steel and aluminum to 50%, in response to Ontario's 25% surcharge on electricity exports to the U.S. However, this escalation was later eased, and the tariff rate for Canadian imports remained at 25% after Ontario agreed to suspend its electricity surcharge.

Ontario's Electricity Surcharge: Ontario Premier Doug Ford imposed a 25% surcharge on electricity exported to the U.S., prompting Trump's initial threat to double tariffs on Canadian steel and aluminum. Ontario Premier Ford vowed to maintain countermeasures until the U.S. tariffs were withdrawn. He also suggested that Canada could further escalate by reducing electricity exports to the U.S.

Renegotiations: Following Trump's tariff threats, Canadian officials agreed to renegotiate aspects of the USMCA (United States-Mexico-Canada Agreement) to resolve the trade disputes.

Economic Implications

Job Losses: The potential tariffs on Canadian aluminum alone could lead to significant job losses in the U.S., with estimates suggesting up to 100,000 jobs at risk.

Recession Concerns: In his recent interview on 9th March’25, Trump acknowledged the possibility of economic transition but insisted that his policies would ultimately benefit the U.S. economy; i.e. short-term pain for long-term gain.

Background

On March 4, 2025, U.S. President Trump implemented a 25% tariff on most imports from Canada and Mexico, alongside a 10% tariff on Canadian energy products, as part of a broader trade strategy aimed at addressing illegal immigration and the flow of fentanyl into the United States. These tariffs, enacted under the International Emergency Economic Powers Act (IEEPA), marked the beginning of a significant escalation in trade tensions with Canada, the U.S.'s northern neighbor and one of its largest trading partners. Trump justified the tariffs by citing national security concerns, pointing to Canada’s alleged failure to curb drug trafficking and illegal border crossings.

Developments on March 11, 2025

By March 11, 2025, the tariff situation had escalated further, with Trump announcing a dramatic increase in tariffs on Canadian steel and aluminum imports. Trump vowed to double the existing 25% tariffs on these metals to 50%, effective March 12, 2025. This move came in response to ongoing trade disputes and Canada’s protective measures on its dairy and agricultural sectors, which Trump criticized as unfair to U.S. producers. The announcement followed a day of intense back-and-forth between U.S. and Canadian officials, with financial markets reacting sharply to the heightened uncertainty.

Trump’s Statements: On March 11, Trump used his Truth Social platform to instruct Commerce Secretary Howard Lutnick to impose the additional 25% tariff on Canadian steel and aluminum, effective Wednesday morning, March 12. He also threatened to "substantially increase" duties on Canadian auto imports scheduled for April 2 unless Canada dropped its longstanding tariffs on U.S. goods. Trump dismissed market concerns, telling reporters that economic rebuilding required such measures, even if they caused short-term volatility.

Trump wrote in his Truth handle:

“Despite the fact that Canada is charging the USA from 250% to 390% Tariffs on many of our farm products, Ontario just announced a 25% surcharge on “electricity,” of all things, and your not even allowed to do that. Because our Tariffs are reciprocal, we’ll just get it all back on April 2. Canada is a Tariff abuser, and always has been, but the United States is not going to be subsidizing Canada any longer. We don’t need your Cars, we don’t need your Lumber, we don’t your Energy, and very soon, you will find that out. MAKE AMERICA GREAT AGAIN!!!”

“Based on Ontario, Canada, placing a 25% Tariff on “Electricity” coming into the United States, I have instructed my Secretary of Commerce to add an ADDITIONAL 25% Tariff, to 50%, on all STEEL and ALUMINUM COMING INTO THE UNITED STATES FROM CANADA, ONE OF THE HIGHEST TARIFFING NATIONS ANYWHERE IN THE WORLD. This will go into effect TOMORROW MORNING, March 12th.

Also, Canada must immediately drop their Anti-American Farmer Tariff of 250% to 390% on various U.S. dairy products, which has long been considered outrageous. I will shortly be declaring a National Emergency on Electricity within the threatened area. This will allow the U.S to quickly do what has to be done to alleviate this abusive threat from Canada.

If other egregious, long time Tariffs are not likewise dropped by Canada, I will substantially increase, on April 2nd, the Tariffs on Cars coming into the U.S. which will, essentially, permanently shut down the automobile manufacturing business in Canada. Those cars can easily be made in the USA!

Also, Canada pays very little for National Security, relying on the United States for military protection. We are subsidizing Canada to the tune of more than 200 Billion Dollars a year. WHY??? This cannot continue. The only thing that makes sense is for Canada to become our cherished Fifty-First State. This would make all Tariffs, and everything else, totally disappear.

Canadians’ taxes will be very substantially reduced, they will be more secure, militarily and otherwise, than ever before, there will no longer be a Northern Border problem, and the greatest and most powerful nation in the World will be bigger, better and stronger than ever — And Canada will be a big part of that. The artificial line of separation drawn many years ago will finally disappear, and we will have the safest and most beautiful Nation anywhere in the World — Your brilliant anthem, “O Canada,” will continue to play, but now representing a GREAT and POWERFUL STATE within the greatest Nation that the World has ever seen!”

“Why would our Country allow another Country to supply us with electricity, even for a small area? Who made these decisions, and why? And can you imagine Canada stooping so low as to use ELECTRICITY, which so affects the lives of innocent people, as a bargaining chip and threat? They will pay a financial price for this so big that it will be read about in History Books for many years to come!”

Canadian Response: Ontario Premier Doug Ford initially threatened a 25% surcharge on electricity exports to the U.S., which powers over a million American homes, unless Trump rescinded his tariff threats. However, after agreeing to meet with Lutnick on Thursday, March 13, Ford suspended the surcharge, signaling a potential de-escalation. Canadian Prime Minister Justin Trudeau had earlier implemented retaliatory tariffs on $21 billion (USD) worth of U.S. goods on March 4, with plans for an additional $125 billion in tariffs if tensions persisted. On March 11, Trudeau maintained a firm stance, warning that the tariffs posed an "existential threat" to Canada’s economy and accusing Trump of aiming to weaken Canada for potential annexation—a claim that heightened diplomatic friction.

Economic Impact: The doubling of steel and aluminum tariffs to 50% was projected to add $18 billion annually to the cost of these materials for U.S. manufacturers, who rely heavily on Canadian supplies (Canada provided over 50% of U.S. aluminum imports in 2024). Businesses, including automakers and steel-dependent industries, warned of significant price increases f

Market Impact:

Wall Street whipsawed on Tuesday, March 11. U.S. stocks fell sharply in the morning after Trump’s tariff hike announcement but rebounded later when Ford paused the electricity surcharge, though the S&P 500 remained marginally down by late afternoon. The broader context showed U.S. indexes losing nearly $5 trillion in market value since Trump took office on January 20, 2025, reflecting investor unease over his tariff-focused agenda on American consumers Meanwhile, Canada faced forecasts of severe economic disruption, with earlier estimates suggesting a potential 4% GDP drop and 100,000 job losses if the tariff war continued unabated.

The US-Canada tariff war is part of a larger trade conflict involving Mexico and China:

Mexico: Similar 25% tariffs were imposed on Mexican goods on March 4, with exemptions for auto imports and USMCA-compliant goods extended until April 2. Mexican President Claudia Sheinbaum promised retaliatory measures but welcomed Trump’s partial concessions after a "respectful" dialogue.

China: Tariffs on Chinese goods rose from 10% (effective February 4) to 20% on March 4, with Beijing responding with 10%-15% tariffs on U.S. agricultural products and threatening further countermeasures via the World Trade Organization (WTO).

US-Canada Trade Relationship

The U.S. and Canada share a $2.2 trillion annual trade relationship, with Canada being the top supplier of steel, aluminum, and energy to the U.S. The tariffs threaten to unravel the United States-Mexico-Canada Agreement (USMCA), a Trump-era deal set for renegotiation in 2026. While exemptions for USMCA-compliant goods (e.g., autos, beef, and avocados) were extended to April 2, the steel and aluminum tariff hike on March 12 signaled a willingness to push beyond the agreement’s framework, risking a broader trade war.

The situation as of late  March 11

Negotiations: The US Commerce Secretary Lutnick hinted at possible tariff modifications if Canada and Mexico addressed fentanyl concerns, with talks scheduled for March 13 between Lutnick and Ford. Trump, however, remained defiant, stating there was "no wiggle room" for Canada unless it met his demands.

Escalation Risks: Canada’s planned $125 billion in additional retaliatory tariffs, set for March 25 if tensions persist, loomed large. Trump’s threats of further auto tariffs by April 2 added pressure, potentially devastating Canada’s auto sector; but the US automobile sector and economy may also suffer.

Economic Stakes: Economists warned of recession risks in both countries, with U.S. GDP growth potentially dropping by 0.7% in 2025 due to the tariff spat, alongside rising unemployment and inflation from disrupted supply chains.

As of March 11, 2025, the US-Canada tariff war soap opera had reached a critical juncture. Trump’s decision to double steel and aluminum tariffs intensified an already volatile situation, drawing swift Canadian pushback and rattling markets. While last-minute concessions from Ontario offered a glimmer of hope for de-escalation, the trajectory pointed toward a prolonged economic standoff unless diplomatic breakthroughs emerged from upcoming talks. The stakes—for sovereignty, jobs, and prices—remained extraordinarily high on both sides of the border.

Bottom line:

For Mexico and Canada, Trump may blink at the last moment citing progress on illegal immigration and the Fentanyl issue. Overall, the Trump trade war may be more harmful to the US economy (as importers) rather than exporters. And the current spade of market plunge may force the Trump admin to take a less hawkish approach to the trade war narrative to Make America Great Again and the resumption of so so-called Golden Age.

Market Wrap:

Wall Street slid on Tuesday, amid an escalated trade/tariff war soap opera. The market always hates uncertainty. But Wall Street Futures also recovered to some extent after both the US (Trump) and Canada r blinked on their respective tariffs rhetorics.  The S&P 500 lost 0.7%, following a 1.5% drop earlier, while the Dow declined by over 450 points (after falling almost 1000 points) and the Nasdaq 100 fell 0.2%.

Trump indicated he was reconsidering plans to double tariffs on Canadian steel and aluminum to 50%, following a meeting announcement between Ontario Premier Doug Ford and US Commerce Secretary Howard Lutnick on Thursday, along with the suspension of the province's electricity export surcharge. Airlines were hit hard, with Delta falling 7% after slashing its earnings forecast due to weaker US demand, while Disney and Airbnb dropped 5% each.  All 11 S&P 500 sectors ended in the red, led lower by industrials, consumer staples, and healthcare. Notable losses were also seen from key tech names such as Apple, Alphabet, and Oracle. On early Wednesday, US stock futures also rose on hopes of a less hawkish Fed stance after softer-than-expected core CPI inflation. Gold also buoyed, hovering around $2925.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold 

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 43850) now has to sustain over 44050 for any further rally to 44250/44400-44500/44800 and 45000/45200-45300/45500 and 45700/45800-45900/46000 in the coming days; otherwise sustaining below 44000, DJ-30 may again fall to 43800/43675-43300/43150 and 42800/42700-42000/41900 in the coming days.

Similarly, NQ-100 Future (20915) has to sustain over 21050 for a further rally to 21300/21500-21700/21850 and 22050/22200-22350/22500 and 22700/23000-23300/23500 in the coming days; otherwise, sustaining below 21000, NQ-100 may again fall to 20900/20600-20400/20150 in the coming days.

Also, technically Gold (CMP: 2855) has to sustain over 2830 for a further rally to 2870/2905-2925/2955 and 2965/2975-3000/3025 and 3050/3075; otherwise sustaining below 2825 may further fall to 2810/2795-2780/2765 and 2745/2725-2695/2665 and further 2635/2600-2585/2560 in the coming days.