In a surprising move, US President Donald Trump on February 3rd, postponed the imposition of tariffs on goods from Mexico and Canada just hours before the decision was to take effect. This averted a potentially devastating trade war in North America.
The agreements to delay tariffs on America’s two largest trading partners came after bilateral calls between Trump and Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau. The decision to hold off on tariffs marked a reversal from the weekend, when Trump signed an order imposing 25% tariffs on Canadian and Mexican goods and 10% on Chinese imports, rattling US allies and investors alike.
Both Sheinbaum and Trudeau agreed to deploy 10,000 troops on their respective borders with the US and enhance efforts to combat drug smuggling. This concession earned Canada and Mexico a 30-day reprieve from the planned tariffs. Previously, analysts had feared that these tariffs could disrupt hundreds of billions of dollars in trade annually and potentially trigger a tit-for-tat battle between the US and its North American neighbors.
As part of Canada’s border measures, Trudeau announced a CA$200 million budget to combat “organized crime and fentanyl smuggling,” along with the appointment of a dedicated fentanyl anti-smuggling official. Canada will also designate gangs as terrorist organizations and establish a “Canada-US Joint Task Force to combat organized crime, fentanyl, and money laundering.”
“The tariffs announced on Saturday will be suspended for a period of 30 days to see if the US can make a deal with Canada,” Trump wrote on the Truth Social network late Monday. Hours earlier, he had also signaled a willingness to “negotiate” with Mexico for a month and hold off on tariffs during that period.
The Canadian dollar, Mexican peso, and stock markets in both countries rebounded following the announcements. Earlier on Monday, these assets had taken a hit amid concerns that the tariffs would inflict significant damage on the economies of all three nations.
“This is a huge relief. A deal has been made,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association of Canada, whose members had been bracing for significant harm from Trump’s tariff plans.
However, in an executive order signed late Monday, the White House stated that “if illegal immigration and drug smuggling worsen, or if Mexico does not sufficiently carry out its commitments, the President will again take steps to invoke the authority to impose tariffs.”
Trump maintained that tariffs against Mexico and Canada were necessary to compel them to take stronger action to stem the flow of migrants and drugs into the US. Regarding China, Trump’s plan for additional 10% tariffs remains in place, with previously imposed tariffs unchanged.
In Mexico, President Sheinbaum described her call with Trump as a “good conversation” lasting about 45 minutes, during which she explained Mexico’s concerns about the sophisticated arms smuggling from the US that fuel criminal gangs in Mexico. She added that Trump agreed to help curb the arms trade.
The Mexican leader also mentioned that Trump brought up the trade deficit between the two countries.
“I told him that, in reality, it is not a trade deficit, but rather we have a trade agreement, we are trading partners, and that deficit is a consequence of being trading partners. And anyway, it is the best way to maintain competitiveness against China and other regions of the world,” Sheinbaum said.
Similarly, Trudeau characterized his call with Trump as “a good conversation,” adding that “Canada is implementing our CA$1.3 billion border action plan – strengthening border security with more helicopters, technology, and personnel, better coordinating with US partners, and increasing resources to fight fentanyl.”
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