U.S. Commerce Nominee Ties Tariff Relief to Border Security Actions, Threatens Two Phases of Tariffs on Canada


Trade Update • Jan 29, 2025

Flags of Canada, Mexico, and United States (USMCA Agreement Concept)
T

he trade landscape between the U.S., Mexico, and Canada faces a crucial turning point as Howard Lutnick, President Donald Trump’s nominee for Commerce Secretary, outlined a two-phase tariff plan. Under this approach, Canada and Mexico could face initial trade penalties within days, followed by broader-ranging tariffs in the spring. The administration is leveraging tariffs to enforce broader policy objectives, particularly on border security, immigration, and drug trafficking.

Tariffs as a Leverage Tool

Lutnick stated that Mexico and Canada could avoid the upcoming tariffs, which are set to take effect as early as this weekend, by taking stronger action on border security. “If we are your biggest trading partner, show us the respect, shut your border,” he said of Trump’s Feb. 1 threat. “This is a separate tariff to create action from Mexico and action from Canada. And as far as I know, they are acting swiftly, and if they execute it, there will be no tariff. And if they don’t, then there will be.”

Lutnick also told senators he preferred “across-the-board” tariffs rather than aiming them at particular products in a tit-for-tat exchange. “My way of thinking, and I discussed this with the president, is country-by-country. Let America make it more fair. We are treated horribly by the global trading environment.” He added that it’s “nonsense” that tariffs drive inflation, while conceding the price of some individual products may rise. (Financial Post)

This approach aligns with Trump’s broader economic and trade agenda, which has often linked tariffs to geopolitical and security issues. The administration has previously used similar tactics with China and other trade partners to negotiate favorable terms for American businesses.

A Second Wave of Tariffs in the Spring

Even if Canada and Mexico avoid tariffs on Feb. 1, the threat looms again in April. Lutnick emphasized that the U.S. is exploring a broad range of tariff options that will be informed by a study President Trump has ordered for release by April 1, 2025.

During his confirmation hearing, Lutnick highlighted key trade disputes with Canada, specifically mentioning dairy and auto manufacturing. Addressing Wisconsin Senator Tammy Baldwin, he criticized Canada’s dairy trade policies: “Canada … treats our dairy farmers horribly. That’s got to end.” (CBC)

He also spoke with Michigan Senator Gary Peters about shifting auto manufacturing jobs back to the U.S.: “The car manufacturing went to Canada, it went to Mexico. It’s important that that come back to Michigan, come back to Ohio.”

These comments underscore Trump’s longstanding complaints about the implementation of certain North American trade agreement rules, particularly in the automotive sector. Even if the initial tariff threats do not materialize, Canada and Mexico could face continued pressure in the coming months.

North America’s Economic Stakes

The potential tariffs pose a significant threat to industries that depend on integrated North American supply chains, particularly in the manufacturing and automotive sectors. Mexico and Canada are the U.S.’s largest trading partners, and disruptions could result in price increases for consumers and logistical challenges for businesses.

Economists warn that such tariffs could have unintended consequences, including retaliatory trade measures. “Tariffs on Canada and Mexico could severely disrupt the flow of goods, leading to higher costs for American manufacturers and consumers alike,” said a report from the U.S. Chamber of Commerce. (Politico)

Automakers, in particular, are bracing for impact. Many U.S. car manufacturers rely on parts produced in Mexico, and additional tariffs would increase production costs, potentially leading to job losses in the U.S.

Mexico and Canada Take Action

In response to the tariff threats, both Mexico and Canada have already started implementing stronger border security measures. Mexican authorities have reportedly increased migrant detentions and cracked down on smuggling operations along the U.S.-Mexico border. Canada, on the other hand, has stepped up surveillance and enforcement to prevent illicit trade flows.

Canadian Prime Minister Justin Trudeau has also sought diplomatic engagement with U.S. officials to negotiate a resolution. “First Ministers discussed ways to protect Canadian families, workers, and employers from the consequences of possible U.S. tariffs, which would cause economic harm to Canadians and Americans alike. Trade and investment between Canada and the U.S. supports millions of jobs on both sides of the border and helps ensure the secure flow of goods and people between countries. They will continue to work together, standing up for Canadians in the face of unjustified and unreasonable U.S. tariffs. (PM Canada)

The Road Ahead

As the Feb. 1 deadline nears, businesses and policymakers on both sides of the border are bracing for potential disruptions. If Lutnick is confirmed as Commerce Secretary, his stance on tariffs and trade policy will shape North America’s economic landscape for years to come. Even if Canada and Mexico successfully sidestep immediate tariffs, the possibility of further restrictions in April ensures that trade relations will remain on edge.

For now, the situation can be summarized as: ‘maybe tariffs now, and maybe more tariffs later’ (CBC).

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