Trump exempts Mexico from tariffs on goods and services covered under USMCA, fate of Canada uncertain

President Donald Trump announced that Mexico will be exempt from his newly imposed 25% tariffs on goods and services covered under the USMCA trade agreement, providing temporary relief for a key US trading partner.

“This exemption will remain in place until April 2,” Trump stated in a social media post on Thursday following a conversation with Mexican President Claudia Sheinbaum.

“I made this decision as a gesture of goodwill and out of respect for President Sheinbaum.”

The announcement followed Commerce Secretary Howard Lutnick’s statement that Trump was considering a temporary exemption from his newly imposed 25% tariffs on goods and services from Canada and Mexico covered under the United States-Mexico-Canada Agreement (USMCA).

However, it remained unclear whether he will extend the full USMCA pause to Canada, although he has said he would exempt Canadian autos and auto parts that are imported under the trade deal.

Reprieve for tariffs under USMCA dubbed “promising” by Trudeau

Lutnick has framed the exemption as a benefit to companies operating under the agreement’s rules, while warning that businesses straying outside USMCA’s framework would be exposed to the full impact of the tariffs.

“If you lived under Donald Trump’s US, Mexico and Canada agreement, you will get a reprieve from the tariffs now. And if you do choose to go outside of that, you did so at your own risk, and today is when that reckoning comes,” Lutnick said.

The exemption is expected to last until April 2, at which point Trump is preparing to impose a new round of tariffs.

These would include “reciprocal” duties on various countries and sector-specific measures targeting key industries such as automotive, pharmaceuticals, and semiconductors.

Canadian Prime Minister Justin Trudeau called Lutnick’s comments “promising” in remarks to reporters in Canada.

“That aligns with some of the conversations that we have been having with administration officials, but I’m going to wait for an official agreement to talk about Canadian response and look at the details of it,” Trudeau said.

“But it is a promising sign. But I will highlight that it means that the tariffs remain in place, and therefore our response will remain in place.”

Uncertainty regarding tariffs keeps markets on edge

The news of a possible exemption came as financial markets reeled from Trump’s escalating trade measures.

Stocks opened lower on Thursday, continuing a week-long slide as investors attempted to assess the broader implications of the administration’s tariff strategy.

The Dow Jones Industrial Average was down 115 points, or 0.3%, after an early session plunge of more than 600 points.

The S&P 500 declined 0.9%, while the Nasdaq Composite dropped 1.1%.

Stock markets have been volatile all week following the implementation of tariffs on Canadian, Mexican, and Chinese imports.

Canada and China responded swiftly with retaliatory measures, while Mexico has signalled plans to unveil countermeasures over the weekend.

“You’re just having confusion,” said Keith Lerner, chief market strategist at Truist. “That confusion is permeating into the day-to-day swings of the market.”

However, investors found some relief on Wednesday when the White House confirmed a one-month deferral of tariffs on automakers whose cars comply with USMCA rules.

What is the USMCA

The USMCA, replaced the North American Free Trade Agreement (NAFTA) in 2020, and was designed to create a more balanced trade relationship between the US, Canada, and Mexico.

The agreement includes measures aimed at strengthening intellectual property rights, supporting small and medium-sized businesses, and modernizing trade rules for the digital economy.

Trump’s latest tariff policies have put the agreement under strain, with Canada and Mexico pushing for clarity on whether compliance with USMCA will be enough to shield them from future trade penalties.

Beyond economic considerations, Lutnick suggested that the US is leveraging trade talks to secure cooperation from Mexico on fentanyl trafficking, an issue Trump has repeatedly highlighted.

“Both Mexico and Canada offered us an enormous amount of work on fentanyl,” he said.

Trump has linked his tariff strategy to national security concerns, arguing that trade restrictions on China and Mexico could help curb illicit drug flows and migration into the US.

At the same time, Trump has signaled that his broader trade agenda remains unchanged.

In a social media post, he reiterated his determination to reduce the US trade deficit, stating his intent to “change” the country’s “massive trade deficit with the world.”

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