Donald Trump has announced his decision to increase tariffs on Canadian steel and aluminium from 25% to 50%.
The US president stated that the tariff hike, set to go into effect on Wednesday, is in response to Ontario’s price increase on electricity sold to the US.
In a post on his Truth Social platform, he wrote: “I have instructed my Secretary of Commerce to impose an ADDITIONAL 25% Tariff, raising it to 50%, on all STEEL and ALUMINUM imported into the UNITED STATES from CANADA, ONE OF THE HIGHEST TARIFFING NATIONS IN THE WORLD.”
Ontario recently announced a 25% increase in electricity charges to 1.5 million American homes and businesses. Canada’s most populous province supplies electricity to Minnesota, New York, and Michigan.
The US stock market experienced a decline following Trump’s announcement.
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Ontario’s reaction
Ontario’s premier, Doug Ford, responded to Trump’s announcement by asserting that he will continue to resist until the US leader’s tariffs on Canadian imports are completely removed.
Trump justified the 25% tariffs on Canada due to fentanyl smuggling and high Canadian taxes on dairy imports that disadvantage US farmers.
He even proposed that Canada should become the 51st state of the United States, a suggestion that has irritated Canadian leaders.
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Analysis: Uncertainty index spikes amid on/off confusion over Trump tariffs
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What’s the impact of US tariffs?
Economic repercussions
The stock market has witnessed a decline in the past two weeks, and Harvard University economist Larry Summers has placed the likelihood of a recession at 50-50.
“The focus on tariffs, coupled with ambiguity and uncertainty, has dampened demand and caused price hikes,” Summers stated. “This has created a scenario of concerns about inflation, economic downturn, and further uncertainty about the future, slowing down economic activities.”
Investment bank Goldman Sachs has revised down its growth forecast for this year from 2.2% to 1.7% and slightly raised the probability of a recession to 20% “due to the White House’s ability to reverse policy changes if downside risks become more serious”.
Trump has attempted to reassure the American public that his tariffs will lead to a transitional period in the economy, with taxes incentivizing more companies to initiate the process of relocating factories to the US to avoid tariffs.
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Trump’s stance on possible recession
During an interview with Fox News on Sunday, Trump did not completely rule out the prospect of a recession, stating: “I hate to predict things like that.
“There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing. And there are always periods of… it takes a little time. It takes a little time. But I don’t… I think it should be great for us. I mean, I think it should be great.”
On Monday, the S&P 500 stock index dropped by 2.7%, and on Tuesday morning, it fell by approximately 0.4%.