President Donald Trump announced a temporary halt on tariffs targeting Mexico and Canada following discussions with leaders from both nations on Monday. This decision came just hours before the tariffs were scheduled to take effect.
The tariffs, which Trump had proposed over the weekend, included a 25% duty on all imports from Mexico and a large portion from Canada (with a 10% exemption for energy products), as well as a new 10% tariff on goods from China. Earlier on Monday, Trump indicated that he would soon be in talks with Chinese officials.
The pause in tariffs was attributed to commitments made by Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau to enhance border security with the United States, some of which were previously established.
“I had a very cordial conversation with President Claudia Sheinbaum of Mexico. She has agreed to deploy 10,000 Mexican soldiers to the border with the United States immediately,” Trump shared on Truth Social. “These troops will specifically work to curb the influx of fentanyl and illegal immigration into our nation.”
Later, after Trudeau announced a 30-day suspension of tariffs, Trump reiterated a similar message on Truth Social: “Canada has committed to secure our Northern Border and combat the influx of deadly drugs like fentanyl that have devastated American lives and communities.” (As reported by CNN, Canada accounts for only 0.2% of fentanyl seizures along the border.)
Following his conversation with Trump, Trudeau confirmed that Canada would be moving forward with its previously announced $1.3 billion border security initiative, appointing a “fentanyl czar,” and designating drug cartels as terrorist organizations.
The announcement of such extensive tariffs against the U.S.’s three largest trading partners had sparked concern, even among some members of Trump’s own party, creating uncertainty in businesses and markets already feeling the effects of prolonged inflation. The possibility of a trade war surfaced quickly, with Canada initiating retaliatory tariffs and China vowing to implement “necessary countermeasures.” Trump’s tariffs included a clause for retaliation, suggesting that further steep tariffs could be imposed.
Even Trump, known for his pro-tariff stance, acknowledged the potential economic fallout from the tariffs. Economists have pointed out that these tariffs could drive Canada and Mexico into recession while increasing consumer prices for various goods in the United States, including vehicles, fuel, and lumber.
Initially, the Dow Jones Industrial Average dropped nearly 600 points, but news of the agreement with Mexico began to stabilize the market.
When questioned about the market’s response, Trump appeared unfazed, stating to reporters in the Oval Office, “I don’t know. I don’t think about it.” The Wall Street Journal harshly criticized the tariff proposal in a recent editorial titled “The dumbest trade war in history.”
In response to questions regarding the market and the editorial, Trump remained defensive, asserting, “Not only is it not dumb, but you’ll see each of those countries is eager to reach a deal,” as he sat near Rupert Murdoch, whose media empire includes the Journal.
The temporary suspension of tariffs was welcomed by Iowa GOP Sen. Chuck Grassley, who is advocating for the exemption of potash from tariffs due to its significance for Iowa family farmers who rely on Canadian fertilizer. “Good news on Mexico tariff pause for 1 month,” Grassley tweeted on X. “Hopefully, negotiations will prevent further tariff discussions.”
Sen. Susan Collins of Maine, a Republican often critical of Trump, also raised concerns about tariffs on Canada, emphasizing its importance as Maine’s primary trading partner. Former GOP Senate leader Mitch McConnell criticized Trump’s tariff strategy during an interview on CBS’s “60 Minutes,” stating, “It will drive the cost of everything up, which will ultimately be paid by American consumers. Why provoke a conflict with your allies over this?”
On Monday, Trump expressed his eagerness to engage in negotiations with Mexico: “We agreed to pause the anticipated tariffs for a month while we negotiate, led by Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick, alongside high-level representatives from Mexico. I look forward to participating in these discussions with President Sheinbaum as we seek a mutually beneficial agreement.”
Sheinbaum announced that Mexico would deploy 10,000 National Guard troops to its northern border to mitigate the flow of fentanyl into the U.S., enhance border security, and improve domestic safety. “For humanitarian reasons, we must assist the United States in addressing its fentanyl crisis, which is resulting in overdose fatalities,” she stated at her morning press conference.
Sheinbaum also mentioned that, for the first time, the U.S. had agreed to collaborate in preventing high-powered weaponry from entering Mexico, which she deemed a significant aspect of their agreement.
U.S. and Mexican officials will continue high-level discussions on security, migration, and trade during the one-month pause on tariffs, Sheinbaum confirmed. She also expressed disagreement with Trump’s assertion that the Mexican government has ties to drug cartels, stating, “There’s no way we could reach an agreement under those circumstances.”
Tariffs have historically been a cornerstone of Trump’s policy during his first term and were anticipated to play a crucial role in his second term as well. “The president has leveraged tariffs as a tool,” Brett Ryan, a senior U.S. economist at Deutsche Bank, told CNN. “Eventually, you’ll need to enforce them, or your threats lose meaning.”
Ryan added, “Businesses have been preparing as best they can. The threat remains, and it’s still present. At some point, tariff actions are inevitable.”
This agreement adds another layer of unpredictability to the U.S. economy. “What we’re witnessing this morning underscores the uncertainty surrounding policy developments,” said Boston Federal Reserve President Susan Collins in a CNBC interview on Monday morning, following the announcements from Sheinbaum and Trump. “Without clarity on actual policy implementation, it’s challenging to accurately assess potential impacts.”
Collins noted the unusual nature of Trump’s broad tariffs on Mexico, Canada, and China, complicating the central bank economists’ ability to analyze their expected economic repercussions.
For now, Collins anticipates that any new tariffs will drive up consumer prices but remains unconvinced that they will necessarily lead to heightened inflation levels.
