Following telephone talks with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum on Monday, US President Donald Trump agreed at the last minute to hold off from imposing 25% tariffs on on the two countries.
By this, Trump has pulled back from the brink of a trade war with America's two closest economic partners by one month.
It is the third time in two weeks the US president has delayed his threatened 25% tariffs on the two countries. China is still set to face additional 10% levy on its exports to the US from Tuesday.
Soon after the announcements came, global markets, which had seen volatility and uncertainty because of Trump's tariff announcement, heaved a sigh of relief and cooled off.
After steep losses earlier in the day, news of the reprieve prompted shares to stage a partial recovery, with the Dow Jones Industrial Average ending the day down just 0.3%.
The rebound followed a sharp slide after Trump issued orders over the weekend to put tariffs on goods from Canada, Mexico and China, and pledged that tariffs on the EU would "definitely happen".
The Guardian and BBC News reported that the agreements came on a day of extreme volatility in global financial markets as rattled investors reacted to the prospect of a dramatically escalating dispute involving the world’s largest economies.
Trump had upended US-Mexico ties over the weekend when he announced 25% tariffs and accused Sheinbaum’s administration of engaging in an “intolerable alliance” with Mexican crime groups.
Sheinbaum rejected that “slanderous” accusation, but on Monday morning struck a softer note as she announced “a series of agreements” with Trump after a conversation between the two leaders during which they agreed to pause US tariffs for a month to allow for fresh negotiations.
Mexico had agreed to send 10,000 members of its national guard “to prevent drug trafficking from Mexico to the US, in particular of fentanyl”, Sheinbaum said. In return, the US had agreed to work to prevent high-powered weapons crossing the border into Mexico.
Trump confirmed the deal shortly afterwards on his Truth Social social media platform. He said 10,000 Mexican soldiers would be “specifically designated to stop the flow of fentanyl, and illegal migrants into our country”.
Negotiations involving senior Mexican officials, the US secretary of state, Marco Rubio, the US treasury secretary, Scott Bessent, and the US commerce secretary, Howard Lutnick, would take place during the pause, he said.
Following two calls with Trump on Monday, Trudeau announced that tariffs would be “paused” for 30 days. “Canada is implementing our $1.3bn border plan – reinforcing the border with new choppers, technology and personnel, enhanced coordination with our American partners, and increased resources to stop the flow of fentanyl,” he said in a statement. “Nearly 10,000 frontline personnel are and will be working on protecting the border.”
Trump wrote on Truth Social: "I am very pleased with this initial outcome, and the tariffs announced on Saturday will be paused for a 30 day period to see whether or not a final economic deal with Canada can be structured."
Economists have warned Trump’s planned wave of tariffs would risk raising prices for millions of Americans, just weeks after he pledged, upon taking office, to “rapidly” bring them down.
Markets sold off sharply worldwide in response to what has been described as a “Trump tariff tantrum” before recovering some of their losses after news broke of the deal with Mexico. Wall Street fell in early trading, with the S&P 500 down almost 2%. Share prices in Europe followed a sharp move lower in Asia.
London’s FTSE 100 index dropped 1.4% from Friday’s record high before making back some of its losses to trade down 1%.
Trump also indicated on Sunday that the EU would be next to face tariffs, but did not say when.
On Monday, EU leaders meeting at an informal summit in Brussels said Europe would fight back if the US imposed tariffs, but called for negotiation. The French president, Emmanuel Macron, said that if the bloc’s commercial interests were attacked it would “make itself respected and thus react”.
The German chancellor, Olaf Scholz, said the EU could respond if necessary with its own tariffs, but stressed it would be better for the two sides to find agreement on trade.