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Trump says Canada and Mexico will escape new tariffs only after NAFTA concessions

President Trump on Jan. 17 said ending the North American Free Trade Agreement would result in the "best deal" for U.S. interests. (Video: Reuters)

President Trump on Monday further expanded his self-initiated trade war, telling Canada and Mexico that he would consider lifting possible tariffs on steel and aluminum only if they concede to White House demands for renegotiating the North American Free Trade Agreement.

Like almost every broadside over trade war so far, his latest message was sent in a Twitter post with little explanation. He also demanded that Mexico do more to prevent drugs from entering the United States as one of the conditions for lifting upcoming steel and aluminum tariffs announced last week.

Speaking later at the White House, Trump vowed he was not bluffing.

“No, we’re not backing down,” Trump told reporters. “We had a very bad deal with Mexico, we had a very bad deal with Canada. It’s called NAFTA.”

The tariffs are expected to hit Canada particularly hard. It is the top exporter to U.S. markets of both steel and aluminum. Canada is also the biggest importer of U.S. steel and aluminum.

The three NAFTA partners — Canada, Mexico and the United States — have been locked in talks aimed at possibly revamping the trade deal, but no clear framework has emerged. The latest round of negotiations is expected to wrap up Monday in Mexico City.

Trump has threatened to withdraw from the NAFTA pact since the 2016 campaign, saying the 24-year-old deal allowed manufacturers to relocate to Mexico and take advantage of cheaper labor. Even a number of Democrats have said NAFTA should be reworked, but Canada and Mexico have resisted Trump’s strong-arm tactics.

And a number of GOP lawmakers are apoplectic about what would happen if Trump withdrew from NAFTA, warning that such a move could devastate U.S. agriculture. They have also warned that it could jeopardize the stock market rally that took place during Trump’s first year in office. The office of House Speaker Paul D. Ryan (R-Wis.) on Monday emailed reporters a article with the headline, “Dow opens more than 100 points lower as trade war fears rattle investors,” a very unusual way to directly critique White House policy. The Dow Jones industrial average is now down more than 2,000 points from its record high in January.

Tying NAFTA to the steel and aluminum tariffs shows that Trump is trying to use his new trade gambit as leverage, although it’s unclear whether it will work.

Trump on Thursday surprised much of Washington — and his own staff — by announcing that he would impose a 25 percent tariff on steel and a 10 percent tariff on aluminum. A formal announcement is expected this week or next. Commerce Secretary Wilbur Ross and top trade adviser Peter Navarro support the tariffs, but even they were hard-pressed to explain how the new restrictions would work.

Trump had originally said he wanted tariffs on steel and aluminum as a way to address what many view as a global oversupply of Chinese production, which has pushed down prices and harmed the U.S. steel and aluminum industries. But China does not export much steel and aluminum to the United States, making it hard to directly limit their production unilaterally.

In his Twitter posts Monday, Trump for the first time made explicitly clear that Canada and Mexico would not be exempted from these tariffs.

Canada and European Union officials have both said they would likely retaliate with tariffs on U.S. goods if the White House imposed tariffs on steel and aluminum. Trump, in response, claimed brazenly that he could win a trade war easily.

Trump’s trade skirmishes now have multiple fronts.

Monday’s attacks on Canada and Mexico come two days after Trump singled out Germany, threatening to impose a tax on all European auto imports brought into the United States.

On Monday at the White House, Trump promised to follow through on these threats.

“If they want to do something,” he said, referring to Europeans, “we’ll just tax their cars, which they send in here like water.”

Trump believes that because the United States buys more from other countries than it exports, there is a huge trade imbalance that disadvantages U.S. workers and companies. He has vowed to use whatever tools are necessary to change this, but many economists and others warn that tariffs and protectionist policies could hurt the overall U.S. economy.

In the latest NAFTA talks, Mexican and Canadian envoys are expected to press the U.S. delegation for details on Trump’s tariff plan and options to be excluded.

Kevin Brady (R-Tex.), chairman of the House Ways and Means Committee, said the tariff issue would be “front and center” in the NAFTA haggling.

Brian Murphy contributed to this report.