Mexico and Canada get reprieves but tariffs on China go ahead, prompting retaliation.

Mexico and Canada negotiated with the US to delay President Donald Trump’s tariffs for at least a month. In separate announcements on X, both country's leaders announced plans to fortify their borders with the US. 

China, however, did not reach an agreement with the US. At midnight last night, an additional 10% tariff went into effect. 

China responded by imposing retaliatory tariffs on US goods. These include a 15% tariff on coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, and some vehicles.

Meanwhile, by agreeing to a deal, Canada and Mexico may have given Trump exactly what he wanted, write BI’s Katherine Li and Huileng Tan. 

Mexican President Claudia Sheinbaum said her country would add 10,000 members of its National Guard to prevent drug trafficking into the US.

Canadian Prime Minister Justin Trudeau said it was “reinforcing the border with new choppers, technology, and personnel” as part of its $1.3 billion plan.

Both leaders specifically referenced stopping the drug fentanyl, which Trump previously highlighted as part of his motivation behind implementing the tariffs. 

But experts warned the deals might not be worth the tradeoff: creating uncertainty in the international trade order and bad blood between the US and its trading partners.

Despite the last-second theatrics, the delay of tariffs on Mexico and Canada validates the long-held belief the trade plans were merely a negotiation tactic. Many on Wall Street view the tariffs as Trump’s way of getting better trade terms. 

That’s not to say it didn’t give the markets a good scare. There was significant price movement across a number of assets yesterday, including stocks, the US dollar, and oil. Goldman has also predicted tariffs would lead to a 5% drop in the S&P 500 over the next few months. Mexico, China, and Canada are the US’ biggest trade partners, specifically for oil, electronics, and vehicles.  

While the delay buys Canada and Mexico some time, the threat still looms for all involved. US consumers are largely expected to feel the brunt of the tariffs. Companies impacted by the taxes will likely pass the cost down to their customers by raising prices.

(There’s an argument that this will force companies to do more production in the US, creating more jobs here. However, those types of changes don’t happen overnight, and the cost of labor in the US compared to foreign countries could still impact pricing.)

Trump even acknowledged his trade plans wouldn’t come without hiccups, saying it would cause “some pain” but would be “worth the price.”

The automotive industry is one area that could see volatility, with Jefferies analysts saying average new car prices could rise as much as $2,700. And even carmakers emphasizing US production, like Tesla and Rivian, will feel the effects of the tariffs.