U.S. Commerce Secretary Hints at Possible Tariff Relief for Mexico and Canada by March 5

Potential Adjustments to Trade Policy Unveiled in Recent Intervie/ AFP

In a significant development for North American trade relations, U.S. Commerce Secretary Howard Lutnick has suggested that tariff relief for Mexico and Canada could be announced as early as March 5, offering a glimmer of hope for industries affected by the recently imposed 25% tariffs on imports from these countries. Speaking during an interview with Fox Business, Lutnick revealed that both nations have been actively engaging with him throughout the day, proposing improved terms to address U.S. concerns. He expressed optimism that President Donald Trump, who has been closely monitoring these discussions, might reach a compromise that adjusts the current tariff structure without fully eliminating it. This potential shift in U.S. trade policy follows the implementation of tariffs on February 4, 2025, aimed at curbing illegal immigration and drug trafficking, particularly the influx of fentanyl, which the administration views as a national emergency.

Lutnick emphasized that any tariff relief for Mexico and Canada would not be a simple pause but rather a strategic adjustment based on mutual efforts. "This is about them stepping up, and us meeting them partway," he noted, hinting at a balanced approach where the 25% rate could be moderated to an intermediate level. While he refrained from disclosing specifics about the ongoing negotiations, Lutnick underscored the importance of the United States-Mexico-Canada Agreement (USMCA), suggesting that compliance with its terms could pave the way for reduced tariffs. "If they stick to the USMCA rules, President Trump might ease up, but if they don’t, they’ll face the consequences," he stated, reinforcing that full tariff withdrawal remains unlikely. This marks the first conciliatory signal from a key Trump administration official since the tariffs took effect, sparking widespread attention across financial markets and trade circles.

The backdrop to this announcement is rooted in President Trump’s broader trade strategy, which intensified with the February 4 tariff rollout on all Mexican and Canadian goods, alongside a 10% levy on Chinese imports. Initially scheduled for February 4, the tariffs were delayed by a month after Mexico pledged to deploy 10,000 National Guard troops to its border and Canada committed $1.3 billion to enhance border security and combat fentanyl smuggling. Despite these efforts, the grace period expired on March 4, 2025, prompting renewed talks. Lutnick’s comments suggest that Mexico and Canada have since offered further concessions, potentially involving stricter border controls or trade incentives, which could influence Trump’s next move. However, Trump himself has yet to publicly endorse tariff relief, maintaining a hardline stance that includes threats of reciprocal tariffs if Canada follows through with retaliatory measures.

Adding complexity to the situation, Trump has escalated rhetoric against Canadian Prime Minister Justin Trudeau, dubbing him "Governor Trudeau" on Truth Social and vowing immediate reciprocal tariffs in response to any Canadian countermeasures. This follows Trudeau’s hints at retaliatory tariffs, raising the specter of a broader trade war. Trump has also signaled plans to impose reciprocal tariffs on global imports starting April 2, a timeline he might accelerate depending on Canada’s actions. Against this tense backdrop, Lutnick’s remarks offer a counterpoint, suggesting that diplomatic channels remain open and that a tariff relief announcement for Mexico and Canada could temper escalating tensions.

The financial markets responded swiftly to Lutnick’s interview, with stocks in the automotive and banking sectors rebounding in after-hours trading after sharp declines during regular hours. General Motors, which saw a 4.56% drop, surged 5.11% in extended trading, while Ford climbed 1.4% after a 2.88% fall. Stellantis rallied 3% following a 4.38% decline, reflecting investor optimism about potential tariff relief for Mexico and Canada, key suppliers in the North American auto supply chain. Banking giants like Morgan Stanley and Goldman Sachs also recovered, gaining 3.45% and 1.18% respectively after losses of 5.74% and 3.99%. These movements underscore the high stakes of U.S. trade policy adjustments and their ripple effects on industries reliant on cross-border commerce.

Delving deeper into the potential implications, tariff relief for Mexico and Canada could stabilize supply chains disrupted by the initial 25% levy, particularly in the automotive sector, where parts frequently cross borders multiple times before final assembly. The USMCA, renegotiated during Trump’s first term, was designed to foster integrated trade, and any adjustment aligning with its framework could preserve economic benefits while addressing security concerns. For consumers, moderated tariffs might mitigate price hikes on goods like vehicles and agricultural products, though experts caution that sustained trade friction could still drive inflation. On the flip side, if negotiations falter and Trump doubles down on tariffs, retaliatory actions from Mexico and Canada could strain diplomatic ties and hurt U.S. exporters, especially in energy and agriculture.

Looking ahead, the March 5 timeline Lutnick referenced will be pivotal in shaping the trajectory of U.S.-Mexico-Canada trade relations under Biden’s successor administration. While his comments signal flexibility, the final decision rests with Trump, whose unpredictable approach keeps observers on edge. The interplay between border security commitments and economic concessions will likely determine whether tariff relief for Mexico and Canada materializes, offering a pragmatic resolution, or if the U.S. opts for a tougher stance that risks escalating into a full-blown trade conflict. For now, businesses and investors alike are bracing for clarity, with markets poised to react sharply to whatever emerges from the White House in the coming hours.