U.S. stocks have recently faced their most significant two-day drop since December, largely influenced by President Donald Trump’s aggressive trade policies. This turmoil has raised concerns among investors about the direction of the economy, prompting many to ponder whether the administration might adjust its approach to trade agreements with Canada and Mexico.
After the latest market decline, thoughts turned to Commerce Secretary Howard Lutnick’s recent comments indicating potential tariff relief. On March 4, 2025, Lutnick suggested on Fox Business Network, "Both the Mexicans and the Canadians were on the phone with me all day today trying to show they’ll do more, and the president’s listening, because you know he’s very, very fair and reasonable.” This announcement hinted at the prospect of Trump offering some compromise with Canada and Mexico.
Trump recently imposed 25% tariffs on most imports from Canada and Mexico, including 10% on Canada’s energy products like oil and electricity. Lutnick indicated, “I think he’s going to figure out: you do more and I’ll meet you in the middle some way and we’re going to probably be announcing it tomorrow.” These remarks were set against the backdrop of retaliatory tariffs imposed by Canada. Prime Minister Justin Trudeau announced immediate 25% tariffs on $30 billion worth of American goods, which may expand to include another $125 billion of U.S. products within 21 days, beginning March 25.
While Lutnick suggested constructive dialogue might lead to moderate solutions, market responses are cautionary. Following his statement, the largest tech ETF rose nearly 1% and futures pointed higher as investors contemplated the different political dynamics. Yet the signs of a recovery are mixed, with the S&P 500 suffering 1.2% losses, dropping back to pre-election levels.
Historically, President Trump has relied heavily on stock market performance as a barometer of his economic success. During his first term, he tweeted about the stock market 156 times, with 60 of those mentions occurring within his first year. Since November 2024, though, Trump has only commented on the stock market once, signaling a shift away from preoccupation with market fluctuations. This lack of focus raises questions about how much he is truly affected by the current state of Wall Street.
Despite many strategists speculating on the likelihood of Trump adjusting tariffs, uncertainty permeates discussions surrounding the trade policies. Nomura’s Charlie McElligott indicated, "I personally believe any sort of ‘Trump put’ in equities remains meaningfully lower.” Investors remain on edge, dynamically hedging positions, convinced of the possibility of heightened volatility.
With significant tariffs already placed on Mexican and Canadian imports, questions about their economic impact remain. According to research from the National Bureau of Economic Research, tariffs predominantly hit domestic consumers, culminating in monthly U.S. real income reductions of roughly $1.4 billion by the end of 2018. This raises concerns about price hikes for everyday Americans as they adjust to new tariffs and trade realities.
Trump’s approach has pitted him against not only foreign leaders but also divisive sentiments within his own party. For example, GOP members, such as Senator Ted Cruz, expressed hopes the tariffs won’t be long-lasting. “It is my hope these tariffs will act as the incentive President Trump said they are meant to be,” Cruz remarked. Meanwhile, members from both sides of the aisle are pushing back against the potential economic ramifications of these tariffs, which could stifle growth and contribute to inflation.
The potential price surge for cars is particularly noteworthy, as analysis suggests tariffs could inflate car prices by as much as $12,000 according to the Anderson Economic Group. This consequence may push automakers, who have been lobbying Trump to reconsider the tariffs, to make their case more forcefully. The automotive sector has expressed strong apprehension about how broad tariffs could affect not only their prices but the industry’s overall health.
Canada and Mexico are firming up their own strategies as inter-country discussions proceed. Mexican President Claudia Sheinbaum is preparing to announce specific retaliatory measures against the U.S. tariffs, evident by her openness to work through the Canada-United States-Mexico Agreement (CUSMA) framework. This reveals the complexity of modern trade relationships, now mired in emotion and policy-length negotiations.
While Lutnick’s comments have ignited hopes for de-escalation, many investors and analysts remain wary, cognizant of the unpredictability of the Trump administration's actions. Craig Basinger of Purpose Investments urged, "listen to it, and don’t take anything at face value.”
One clear takeaway is this: as uncertainty looms over trade war factors and their corresponding economic ripple effects, investors can expect significant fluctuations as the landscapes develop. Although signs of compromise may emerge, the underlying economic forces suggest the market will remain on high alert for major policy developments. Without more factual clarity about near-term trade protocols, many stakeholders are grappling with the question of what’s next for both the economy and U.S.-Canada-Mexico trade relations. Traders and investors alike will remain tuned to the administration’s signals as they navigate these turbulent waters.