In a last-minute agreement, U.S. President Donald Trump has temporarily paused new tariffs on Mexico after the neighboring country agreed to deploy 10,000 National Guard troops along its northern border to combat illegal drug trafficking, particularly fentanyl.
Trump made the announcement on social media Monday, just hours before the tariffs were set to take effect.
Mexican President Claudia Sheinbaum confirmed the agreement, which also includes a U.S. commitment to curb the trafficking of high-powered weapons into Mexico. The two leaders spoke by phone as the deadline loomed, paving the way for a month-long pause to allow further negotiations.
Economic Fallout and Global Market Reactions
The uncertainty surrounding the tariffs caused turmoil in global financial markets. The benchmark S&P 500 plunged 1.7% at the opening bell, extending a global selloff that saw major losses in Asian and European stock markets. Concerns over a potential trade war led to a nearly 3% drop in Tokyo shares and sharp declines in Germany’s DAX, France’s CAC, and Britain’s FTSE 100.
Meanwhile, the currency markets reacted swiftly. The Canadian dollar, Mexican peso, and Chinese yuan weakened against a surging U.S. dollar. Oil prices also spiked as Canada and Mexico, key suppliers of U.S. crude oil, braced for economic impacts.
Trump also spoke with Canadian Prime Minister Justin Trudeau on Monday, signaling that tariffs on Canada and China remain scheduled to take effect on Tuesday. Canada and Mexico have both vowed retaliatory measures if the tariffs proceed.
Europe Braces for Potential U.S. Tariffs
Trump hinted that the European Union could be the next target for tariffs, citing trade imbalances. “They don’t take our cars, they don’t take our farm products. They take almost nothing, and we take everything from them,” he told reporters upon returning from his Mar-a-Lago estate.
European leaders meeting in Brussels vowed to respond if Trump moves forward with tariffs on EU goods. French President Emmanuel Macron emphasized that Europe must stand firm in defending its commercial interests. German Chancellor Olaf Scholz noted that while Europe prefers negotiation, it would take countermeasures if necessary.
Trump suggested that Britain, which left the EU in 2020, may be spared from the potential tariffs, stating, “I think that one can be worked out.”
Economic Concerns Over Tariff Strategy
Economists warn that Trump’s proposed 25% tariffs on Canada and Mexico, along with 10% tariffs on China, could slow global economic growth and drive up prices for American consumers. Critics argue the tariffs could push Canada and Mexico into recession and cause stagflation—high inflation coupled with economic stagnation—in the U.S.
Automakers are among the industries expected to be hit the hardest, as vehicles and parts cross borders multiple times before final assembly. Shares of major U.S. and European automakers, including Ford, General Motors, Volkswagen, BMW, and Stellantis, tumbled between 4% and 6% in response to the tariff threat.
National Emergency and Future Trade Relations
The White House has framed the tariffs as a necessary measure to address what Trump calls a national emergency over fentanyl trafficking and illegal immigration. However, China, one of the targeted nations, has dismissed the claims, stating that fentanyl is America’s problem. Beijing has vowed to challenge the tariffs at the World Trade Organization and implement countermeasures while leaving the door open for dialogue.
Similarly, Canada has signaled plans to challenge the tariffs through international trade bodies.
As tensions rise, businesses, consumers, and global leaders await the outcome of the next round of negotiations, which could determine the future of North American and international trade relations.
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