Trump reverses threat of new tariffs on Canada after Ontario suspends electricity taxes

In an unexpected turn of events, President Donald Trump reversed an extraordinary escalation of the trade war against Canada on Tuesday after threatening a massive increase in tariffs on Canadian steel and aluminum, as well as new tariffs on electricity from the neighboring country.

Before Trump reversed the threat, Canada confirmed the suspension of the 25% surcharge on electricity exports to Michigan, Minnesota and New York.

The Trump administration hailed the move as another successful negotiation by the Republican president.

"President Trump has once again used the leverage of the American economy, which is the best and biggest in the world, to deliver a win for the American people," a White House spokesman said.

Hours before Canada confirmed the suspension of tariffs on electricity coming into the U.S., Trump threatened via the social network Truth that tariffs on Canadian steel and aluminum would rise from 25% to 50% on March 12, in an announcement that again unsettled markets in the face of trade war uncertainty.

In the same message, Trump threatened Canada with more tariffs on its auto industry, urging them to eliminate long-standing protectionist measures against U.S. products.

The president also said suggested that Canada should become the 51st state, rhetoric that the president himself has been ratcheting up in recent months as this new trade war unfolds.

"If other egregious, long time Tariffs are not likewise dropped by Canada, I will substantially increase, on April 2nd, the Tariffs on Cars coming into the U.S. which will, essentially, permanently shut down the automobile manufacturing business in Canada," Trump posted. "Also, Canada pays very little for National Security, relying on the United States for military protection. We are subsidizing Canada to the tune of more than 200 Billion Dollars a year. WHY? This cannot continue. The only thing that makes sense is for Canada to become our cherished Fifty First State. This would make all Tariffs, and everything else, totally disappear."

Although the threats from both sides went on and on for most of the day, the day ended with U.S. Commerce Sec, Howard Lutnick; Canada's finance minister, Dominic LeBlanc; and Ontario Premier Doug Ford committing to meet on Thursday to renegotiate the free trade agreement known as the USMCA.

The announcement by U.S. and Canadian officials caused markets to close with much smaller losses relative to projections. Finally, the Dow ended the day down 478 points, equivalent to 1.1%. For its part, the S&P 500 was down 0.8%, nearing correction territory, which is defined when a stock falls 10% from its high. The Nasdaq Composite, which was already in correction, posted an additional 0.2% decline.