Trump pauses tariffs on Mexico and Canada, but not China

MEXICO CITY/WASHINGTON/OTTAWA - US President Donald Trump suspended his threat of steep tariffs on Mexico and Canada on Feb 3, agreeing to a 30-day pause in return for concessions on border and crime enforcement with the two neighbouring countries.

US tariffs on China

took effect hours later.

Both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum said they had agreed to bolster border enforcement efforts in response to Mr Trump’s demand to crack down on immigration and drug smuggling. That would pause 25 per cent tariffs due to take effect on Feb 4 for 30 days.

Canada agreed to deploy new technology and personnel along its border with the US, and launch cooperative efforts to fight organised crime, fentanyl smuggling and money laundering.

Mexico agreed to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal migration and drugs.

The US also made a commitment to prevent trafficking of high-powered weapons to Mexico, Ms Sheinbaum said.

“As president, it is my responsibility to ensure the safety of all Americans, and I am doing just that. I am very pleased with this initial outcome,” Mr Trump said on social media.

The agreements forestall, for now, the onset of a trade war that economists predicted would damage the economies of all involved and usher in higher prices for consumers.

After speaking by phone with both leaders, Mr Trump said he would try to negotiate economic agreements over the coming month with the two largest US trading partners, whose economies have become tightly intertwined with the US since a landmark free-trade deal was struck in the 1990s.

Additional 10 per cent tariffs across all Chinese imports into the US came into effect at 12.01am Eastern Time (1.01pm Singapore time) on Feb 4 after Mr Trump repeatedly warned Beijing it was not doing enough to halt the flow of illicit drugs into the US.

Within minutes, China’s Finance Ministry said it would impose levies of 15 per cent for US coal and liquefied natural gas, and 10 per cent for crude oil, farm equipment and some cars.

The new tariffs on US exports will start on Feb 10, the ministry said.

A White House spokesperson said Mr Trump would not be speaking to Chinese President Xi Jinping until later in the week.

Mr Trump warned he might increase tariffs on Beijing further.

“China hopefully is going to stop sending us fentanyl, and if it’s not, the tariffs are going to go substantially higher,” he said.

China has called fentanyl America’s problem,

and said it would challenge the tariffs at the World Trade Organisation and take other countermeasures, but also left the door open for talks.

The latest twist in the saga sent the Canadian dollar soaring after slumping to its lowest in more than two decades. The news also gave US stock index futures a lift after a day of losses on Wall Street.

Industry groups, fearful of disrupted supply chains, welcomed the pause.

“That’s very encouraging news,” said Mr Chris Davison, who heads a trade group of Canadian canola producers. “We have a highly integrated industry that benefits both countries.”

Mr Trump suggested on Feb 2 the 27-nation European Union would be his next target, but did not say when.

EU leaders at an informal summit in Brussels on Feb 3 said Europe would be prepared to fight back if the US imposes tariffs, but also called for reason and negotiation. The US is the EU’s largest trade and investment partner.

Mr Trump hinted that Britain, which left the EU in 2020, might be spared tariffs.

Mr Trump acknowledged over the weekend that his tariffs could cause some short-term pain for US consumers, but says they are needed to curb immigration and narcotics trafficking, and spur domestic industries.

The tariffs as originally planned would cover almost half of all US imports, and would require the US to more than double its own manufacturing output to cover the gap – an unfeasible task in the near term, ING analysts wrote.

Other analysts said the tariffs could throw Canada and Mexico into recession and trigger “stagflation” – high inflation, stagnant growth and elevated unemployment – at home. REUTERS