Donald Trump’s trade war continued to roil financial markets on Tuesday as the US president announced he was doubling tariffs on Canadian steel and aluminum and vowed massive further retaliation against Canada for Ontario’s electricity surcharge.

The S&P 500 slid to a six-month low as Trump ramped up his rhetoric while the Dow Jones also tumbled and five-year Government of Canada bond yields, which lead Canadian fixed mortgage rates, slipped on Tuesday morning before posting a slight recovery.

Five-year yields were perched just above 2.6% at time of writing, having slumped since the end of February when Trump’s tariffs loomed into view again after an initial 30-day pause.

The president took to Truth Social on Tuesday morning to respond to Ontario’s new 25% levy on electricity to the US and said Canada would pay “a financial price for this so big that it will be read about in History Books for many years to come.”

He said he had instructed commerce secretary Howard Lutnick to slap additional tariffs on Canadian steel and aluminum, bringing those charges to 50%, and once again floated the idea of the US annexing Canada.

“The only thing that makes sense is for Canada to become our cherished Fifty First State,” Trump wrote. “This would make all Tariffs, and everything else, totally disappear.”

Karoline Leavitt, the White House press secretary, said Canada would face “grave consequences” if Ontario shut off power to the US, while Trump vowed to declare a national emergency on electricity within the regions impacted by the surcharge.

The extra charges on steel and aluminum, which are set to take effect on Wednesday morning, could ramp up home prices south of the border, with Trump having already targeted Canadian softwood lumber for heavy tariffs.

They mark a new escalation in a trade war, launched last week by Trump, that has sent financial markets into a tailspin and raised the prospect of big rate reductions for both fixed and variable mortgages in Canada.

The Bank of Canada is scheduled to make its second rate decision of the year tomorrow, with a 25-basis-point cut widely expected – and further cuts could be on the way if the trade crisis continues.

Mark Carney, who won the Liberal Party’s leadership race to succeed Justin Trudeau and will be sworn in as prime minister in the coming days, has confirmed his government will keep Canada’s countermeasures against US tariffs in place “until the Americans show us respect and make credible, reliable commitments to free and fair trade.”

Ontario premier Doug Ford said on Tuesday afternoon he would temporarily lift the electricity surcharge and is expected to meet with Lutnick later this week to discuss the trade dispute further.

This article was written for CMP: