In exchange for increased border security, the US president delays tariffs on neighbouring countries but keeps tariffs on China intact.
On February 3, US President Donald Trump announced a temporary halt to the imposition of substantial tariffs on Mexico and Canada, agreeing to a 30-day delay. This suspension comes in return for both countries committing to enhance border security efforts, specifically targeting drug smuggling and illegal immigration.
While the tariffs on Mexico and Canada are temporarily postponed, the planned 10% duties on a wide range of Chinese goods will still take effect on February 4, maintaining ongoing pressure on Beijing.
Both Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau confirmed that their respective countries would strengthen enforcement measures. Mexico will send 10,000 National Guard troops to its northern border to address illegal immigration and drug trafficking, while Canada will introduce new technologies and personnel to improve border security and combat organised crime, including the prevention of fentanyl trafficking and money laundering.
In exchange, Trump vowed to take action against the illegal flow of high-powered firearms into Mexico, a point raised by Sheinbaum during talks.
Trump expressed his satisfaction on social media, stating that the agreements would enhance American safety. The temporary avoidance of a trade conflict between the US, Mexico, and Canada has been welcomed, as economists had warned that a trade war could negatively impact all three economies, raising consumer prices.
Looking ahead, Trump expressed interest in negotiating further economic deals with Mexico and Canada, given their deep economic ties with the US. These countries stand to gain from avoiding tariffs that would harm cross-border trade.
Tariffs on China Persist Unlike Mexico and Canada, no such agreements have been reached with China. The US president confirmed that tariffs of 10% on Chinese goods will be enforced starting at 12:01 AM ET on February 4. Trump has not scheduled talks with Chinese President Xi Jinping yet, but has warned that tariffs may increase if China does not address the flow of fentanyl into the US.
China has rejected the notion that fentanyl is exclusively an American issue and has suggested it might challenge the tariffs at the World Trade Organisation, although Beijing has left the door open for further negotiations.
The news of the tariff delay has led to a rise in the Canadian dollar, which had recently fallen to its lowest level in over 20 years, and boosted US stock futures following a recent Wall Street decline.
Relief for Cross-Border Trade Industry representatives, particularly from sectors reliant on cross-border trade, have expressed relief at the tariff delay. Chris Davison, head of a Canadian trade group representing canola producers, welcomed the move, highlighting the importance of the US-Canada trade relationship.
Trump has also hinted that the European Union (EU) may be his next target for tariffs, though he did not specify a timeline. EU leaders, meeting in Brussels on February 3, signalled their readiness to respond to any potential tariffs while stressing the importance of diplomatic negotiations.
Economic Impact on Consumers and Economies While Trump acknowledged the short-term burden tariffs might place on US consumers, he justified them as necessary to combat immigration and narcotics trafficking and to stimulate domestic manufacturing. Analysts have warned, however, that the full implementation of the tariffs could affect nearly half of all US imports, requiring an unrealistic increase in domestic production to fill the void.
Some experts have cautioned that the tariffs could push both Mexico and Canada into recession, potentially leading to stagflation in the US, marked by high inflation, sluggish growth, and rising unemployment.
