Flags fly over the Ambassador Bridge in Windsor, Ontario. Photo: Geoff Robins/AFP via Getty Images

President Trump on Tuesday imposed new retaliatory tariffs on Canada and insisted the only solution was for the country to join the U.S. — but then reversed his decision after Ontario agreed not to levy electricity exports.

Why it matters: The pullback was the latest example of the on-again, off-again volatility that has disrupted financial markets.

• However, the initial threat was an escalation — both of the trade war with one of the top U.S. trading partners, and of Trump’s increasingly serious rhetoric about trying to make Canada part of the U.S.

The big picture: Close allies less than two months ago, relations between the U.S. and Canada have now frayed to the point that diplomacy is being conducted by furious TV appearances and social media name-calling.

• It’s spurred a sense of Canadian nationalism strong enough to change the course of the country’s politics.

Catch up quick: Trump, in a Truth Social post Tuesday morning, said steel and aluminum tariffs on Canada, already scheduled for Wednesday, would now be 50% instead of 25%.

• He also threatened further tariffs to “permanently shut down the automobile manufacturing business in Canada.”
• “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,” he wrote.
• Canada has repeatedly rejected any notion of sacrificing its sovereignty to join the U.S.

Between the lines: Ontario Premier Doug Ford posted to X that he would meet with Commerce Secretary Howard Lutnick on Thursday to discuss trade issues, and in the meantime would suspend a tariff on electricity coming into the U.S.

• Following Ford’s reversal, the White House issued a statement confirming the extra tariffs would not go into effect tomorrow — just the 25% steel and aluminum tariff that was originally planned.
• “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 in a statement.

Canada is by far the largest source of U.S. electricity imports, per EIA data, though those imports account for less than 1% of U.S. consumption.

What they’re saying: Canada’s incoming prime minister, former central bank head Mark Carney, promised a response that maximized the impact on the U.S.

• “My government will keep our tariffs on until the Americans show us respect and make credible, reliable commitments to free and fair trade,” he posted to X.
• The White House, at a press briefing, said Trump and Carney have not yet spoken.

Editor’s note: This story has been updated with U.S. and Canadian officials revising their plans on tariffs.