WASHINGTON/OTTAWA (Reuters) - President Donald Trump on Tuesday ramped up a burgeoning trade war with Canada, vowing to double tariffs set to take effect within hours on all imported steel and aluminum products from America's northern neighbor to 50%, although he later said he would likely lower them after Canadian officials agreed to talks.

Trump's latest salvo, which sent financial markets reeling and rekindled fears of inflation, followed Ontario Premier Doug Ford's announcement that he would place a 25% surcharge on the electricity Canada's most populous province supplies to more than one million U.S. homes unless Trump drops all of his tariff threats against Canada's exports into the U.S.

Ford later agreed to suspend the surcharge and meet with U.S. Commerce Secretary Howard Lutnick on Thursday, calling for cooler heads to prevail. Trump said he respected the move.

In an earlier post on his Truth Social media platform, Trump said he had instructed Lutnick to put an additional 25% tariff on the metals products from Canada that will go into effect on Wednesday morning. Tariffs totaling 25% on all imported steel and aluminum products originating from other countries will start that day.

Trump also blasted Canada for trade protections it has in place on dairy and other agricultural products, and threatened to "substantially increase" duties on cars coming into the U.S. that are set to take effect on April 2 "if other egregious, long time Tariffs are not likewise dropped by Canada."

The U.S. president shook off market gyrations, telling reporters that markets would go up and down, but he had to rebuild the economy.

Before agreeing to meet Lutnick, Ford told MSNBC: "We will not back down. We will be relentless. I apologize to the American people that President Trump decided to have an unprovoked attack on our country."  

About 1.5 million homes and businesses in New York state, Michigan and Minnesota are powered by Ontario's utilities, and Trump said he would declare a national emergency to mobilize resources to assist the affected areas.

The escalation of the trade war occurred as Prime Minister Justin Trudeau was preparing to formally hand over power this week to his successor Mark Carney, who overwhelmingly won the leadership race of the ruling Liberals last weekend. On Monday, Carney said he could not speak with Trump until he was sworn in as prime minister.

White House press secretary Karoline Leavitt told reporters that Ford's initial comments were "egregious and insulting" and said Canada would be "very wise not to shut off electricity for the American people." Trump was determined to ensure the U.S. relied on its own domestic electricity, she said.

Alberta, for its part, wants to de-escalate the trade dispute with Washington, its energy minister told reporters at the CERAWeek energy conference in Houston, saying the oil-producing Western Canadian province provided the U.S. with several options.

The back-and-forth between the U.S. and Canada whipsawed financial markets that have been battered by Trump's focus on tariffs. After tumbling hard through the morning when Trump announced the new doubling of rates on Canadian metals, stocks rebounded after Ford said he would suspend the surcharge.

The benchmark S&P 500 index, however, was down marginally in late-afternoon trading. U.S. stocks have fallen hard since reaching a record high about a month after Trump took office on January 20, with nearly $5 trillion of market value erased from U.S. indexes. Trump is set to meet later on Tuesday with about 100 chief executives of U.S. firms as evidence grows that his trade policies are posing a downside risk to the economy, threatening to dash a "soft landing" that until recently appeared as the base case and reignite inflation. 

Whether any of them will be willing to raise such concerns directly with Trump is unknown. Ahead of the gathering, however, businesses ranging from airlines to department stores said his fast-shifting trade policies are starting to have a chilling effect across many industries, as consumers pull back on purchases of everything from basic goods to travel.

CONFIDENCE TAKES A HIT

Leavitt underscored that broader 25% levies on all steel and aluminum imported to the U.S. from anywhere would kick in early on Wednesday, with another round of tariffs on autos as well as tit-for-tat reciprocal tariffs lined up for early April. Canada and China have retaliated with their own tariffs on U.S. exports, while Mexico stopped short of retaliation after Trump delayed his planned levies on the southern U.S. neighbor.

The metals tariffs will apply to millions of tons of steel and aluminum imports from Canada, Brazil, Mexico, South Korea and other countries that had been entering the U.S. on a duty-free basis under carve-outs. Trump has vowed that the tariffs will be applied "without exceptions or exemptions" in a move he hopes will aid the struggling U.S. industries.

Trump's promise to double the metals levies on Canada sent some aluminum prices soaring. Price premiums for aluminum on the U.S. physical market climbed to a record high above $990 a metric ton on Tuesday.

Trump's hyper-focus on tariffs since taking office in January has rattled investor, consumer and business confidence in ways that economists increasingly worry could cause a recession. A small business survey on Tuesday showed sentiment weakening for a third straight month, fully eroding a confidence boost following Trump's November 5 election victory, and a survey of households by the New York Federal Reserve on Monday showed consumers growing more pessimistic about their finances, inflation and the job market.

Reuters polls of economists last week showed risks to the Mexican, Canadian and U.S. economies are piling up amid a deep uncertainties for businesses and decision-makers. The surveys showed 70 of 74 economists polled across Canada, the U.S. and Mexico judged that the risk of a recession had increased, and upside risks to inflation in the U.S. rose in particular.

Leavitt sidestepped questions about growing economic concerns, telling reporters: "There's a lot of reason to be optimistic. The American people, CEOs, people on Wall Street and on Main Street should bet on this president. He is a deal maker. He is a businessman, and he's doing what's right for our country."