U.S. commerce secretary suggests tariff compromise coming

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WASHINGTON — President Donald Trump launched a trade war Tuesday against America’s three biggest trading partners, drawing immediate retaliation from Mexico, Canada and China and sending financial markets into a tailspin as the U.S. faced the threat of rekindled inflation and paralyzing uncertainty for business.

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Later in the day, Commerce Secretary Howard Lutnick said the U.S. would likely meet Canada and Mexico “in the middle,” with an announcement coming as soon as Wednesday.

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Lutnick told Fox Business News that the tariffs would not be paused, but that Trump would reach a compromise.

“I think he’s going to figure out: You do more, and I’ll meet you in the middle in some way,” Lutnick said.

JUST NOW: US Commerce Secretary Lutnick says President Trump could roll back Canada and Mexico tariffs as soon as tomorrow pic.twitter.com/bK9gBDE9Ba — Morning Brew ☕️ (@MorningBrew) March 4, 2025

Just after midnight, Trump imposed 25 per cent tariffs on Mexican and Canadian imports, though he limited the levy to 10 per cent on Canadian energy. Trump also doubled the tariff he slapped last month on Chinese products to 20 per cent.

Beijing retaliated with tariffs of up to 15 per cent on a wide array of U.S. farm exports. It also expanded the number of U.S. companies subject to export controls and other restrictions by about two dozen.

Prime Minister Justin Trudeau said Canada would plaster tariffs on more than $100 billion of U.S. goods over the course of 21 days.

“Today the United States launched a trade war against Canada, their closest partner and ally, their closest friend. At the same time, they are talking about working positively with Russia, appeasing Vladimir Putin, a lying, murderous dictator. Make that make sense,” Trudeau said.

Mexican President Claudia Sheinbaum said Mexico will respond to the new taxes with its own retaliatory tariffs. Sheinbaum said she will announce the products Mexico will target on Sunday. The delay might indicate that Mexico still hopes to de-escalate Trump’s trade war.

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The president is abandoning the free-trade policies the U.S. pursued for decades after the Second World War. He argues that open trade has cost America millions of factory jobs and that tariffs are the path to national prosperity. He rejects the views of mainstream economists who contend that such protectionism is costly and inefficient.

Import taxes are “a very powerful weapon that politicians haven’t used because they were either dishonest, stupid or paid off in some other form,” Trump said Monday. “And now we’re using them.”

Dartmouth College economist Douglas Irwin, author of a 2017 history of U.S. tariff policy, has calculated that Tuesday’s hikes will lift America’s average tariff from 2.4 per cent to 10.5 per cent, the highest level since the 1940s. “We’re in a new era for sure.”

As the trade disputes escalated, stocks racked up more losses Tuesday on Wall Street, wiping out all the gains since election day for the S&P 500. Markets in Europe also fell sharply.

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Trump has said tariffs are intended to address drug trafficking and illegal immigration. But he’s also said the tariffs will come down only if the U.S. trade deficit narrows.

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The U.S. president has injected a disorienting volatility into the world economy, leaving it off balance as people wonder what he will do next.

During his first term, Trump imposed tariffs only after lengthy investigations — into the national security implications of relying on foreign steel, for example, said Michael House, co-chair of the international trade practice at the Perkins Coie law firm. But by declaring a national emergency last month involving the flow of immigrants and illicit drugs across U.S. borders, “he can modify these tariffs with a stroke of the pen,” House said. “It’s chaotic.”

Democratic lawmakers were quick to criticize the tariffs.

“Presidents don’t get to invent emergencies to justify bad policies,” said Rep. Gregory Meeks, the top Democrat on the House Foreign Affairs Committee. “Abusing emergency powers to wage an economic war on our closest allies isn’t leadership — it’s dangerous.”

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Even some Republican senators raised alarms. “Maine and Canada’s economy are integrated,” said Sen. Susan Collins, R-Maine, explaining that much of the state’s lobsters and blueberries are processed in Canada and then sent back to the U.S.

U.S. businesses near the Canadian border scrambled to deal with the impact. Gutherie Lumber in suburban Detroit reached out Tuesday to Canadian suppliers about the cost of eight-ft. wood studs. About 15 per cento f the lumber at the Gutherie yard in Livonia, Mich., comes from Canada.

Sales manager Mike Mahoney said Canadian suppliers are already raising prices. “They’re putting that 25 per cent on studs.” Builders will strain to stay within their budgets.

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After years of effort and thousands of dollars in investment, Tom Bard, a Kentucky craft bourbon distiller, gained a foothold in the Canadian provinces of British Columbia and Alberta and watched his sales grow north of the border.

Now Kentucky bourbon is in Canada’s crosshairs

, and an order from his Canadian distributors is on hold.

“That hurts,” he said. At his small distillery “every single pallet that goes out the door makes a huge difference … The last thing you want is to have an empty spot where your bottles are supposed to be on a shelf.”

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Bard co-owns the Bard Distillery with his wife, Kim, in western Kentucky’s Muhlenberg County, about 217 km southwest of Louisville.

Trump overwhelmingly carried Kentucky in the November election. In Muhlenberg County, Trump defeated Kamala Harris by a more than 3-to-1 margin.

The China tariffs also threaten the U.S. toy industry. Greg Ahearn, president and CEO of the Toy Association, said the 20 per cent tariffs on Chinese goods will be “crippling,” as nearly 80 per cent of toys sold in the U.S. are made in China.

— Gillies reported from Toronto. Associated Press writers Anne D’Innocenzio in New York; Corey Williams in Detroit; Bruce Schreiner in Louisville, Ky.; Didi Tang and Lisa Mascaro in Washington; and Megan Janetsky and Maria Verza in Mexico City contributed to this report.

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