Canada, Mexico exempt from tariffs once NAFTA deal signed: US official
Steve Mnuchin (Screen Capture)

Canada and Mexico will be exempt from the steel and aluminum tariffs President Donald Trump will unveil this week once a new North American Free Trade Agreement is reached, US Treasury Secretary Steven Mnuchin said Tuesday.

Acknowledging the fears that Trump's surprise announcement last week could spark a trade war, Mnuchin also hinted that the final implementation may address some of the issues.

In testimony before a House appropriations subcommittee, the Treasury secretary said he has been in contact with his counterparts on the specifics of the tariff proposals and "we're trying to deal with this on a case by case basis."

The president "does understand the potential impact it has on the economy, and I think we have a way of managing through this."

Trump last week announced that he would be imposing tariffs of 25 percent on all imported steel and 10 percent on aluminum to protect domestic industries, citing a rarely-invoked national security section of US trade law.

That sparked global outrage and threats of retaliation, including from the European Union, and NAFTA-partner Canada which has the most to lose as the main provider of steel to the US market.

Trump said he would not back down, even for the closest US neighbors, unless and until a deal to revamp NAFTA that is "fair" for US business and workers was signed.

Many observers read that as a softening of his stance to have no exemptions, and that sent global financial markets roaring back Tuesday.

Mnuchin was even more definitive saying that with Canada and Mexico "our objective is to have a new NAFTA and once we do that -- which I'm cautiously optimistic on -- the tariffs won't apply to them."

However, with the sanctions due out this week and the latest round of NAFTA talks ending Monday with no agreement imminent, the two countries will face tariffs on their metals exports at least for some time.

The NAFTA talks are complicated by coming presidential elections in Mexico in July as well as crucial midterm elections in the United States in November.