Donald Trump pulls US back from brink of trade war with Mexico and Canada

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US President Donald Trump halted sweeping tariffs on Mexico and Canada just hours before they were due to come into force, pulling North America back from the brink of a damaging trade war.

Deals to delay sweeping tariffs on America’s two biggest trading partners by a month were announced on Monday following separate bilateral calls between Trump and Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau.

Trump’s move to back away from the levies for now marks a reversal from the weekend, when he unnerved allies and investors by saying he would follow through on his plans to hit Canada and Mexico with huge levies.

Sheinbaum and Trudeau both agreed to place 10,000 troops at their borders with the US and combat drug trafficking, winning them a 30-day reprieve from levies that would have disrupted hundreds of billions of dollars a year in trade and potentially ignited a tit-for-tat skirmish.

As part of the package of border measures, Trudeau vowed to provide C$200mn ($138.56mn) of funding tied to “organised crime and fentanyl” and appointing a “Fentanyl Czar”.

Canada will also list cartels as terrorist organisations and launch a “Canada- US Joint Strike Force to combat organised crime, fentanyl and money laundering”.

“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,” Trump said late on Monday on his Truth Social platform, having hours earlier indicated that he would hold a month of “negotiations” with Mexico.

The Canadian dollar, Mexican peso and US stocks had taken a hit early on Monday after Trump at the weekend said he would follow through with threats to hit Canada and Mexico with 25 per cent tariffs, with a few carve-outs. The tariffs were broadly expected to have a profound impact on businesses and the broader economy in all three countries.

Wall Street stocks sharply trimmed their losses, however, as Trump wound back his stance on imminent tariffs. The Canadian dollar and peso also recovered by Monday evening.

“This is a huge relief, getting a deal,” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, an industry that was expected to sustain a heavy blow from the tariffs.

Despite the pause, the White House said in an executive order on Monday evening that “if the illegal migration and illicit drug crises worsen, and if the government of Mexico fails to take sufficient steps to alleviate these crises, the president shall take necessary steps to address the situation”.

Trump insists the tariffs on Mexico and Canada are needed to get the two countries to do more to stop migrants and drugs crossing into the US. He has also said he will hit China with 10 per cent tariffs over and above existing US levies.

US companies have pushed back against the tariff plans, warning they would push up prices for Americans and upend supply chains.

Sheinbaum said her call with Trump, which she described as a “good conversation”, lasted about 45 minutes and that she had explained Mexico’s concerns over the smuggling of sophisticated weapons from the US that were being used by the country’s criminal groups. She added that the US president had agreed to help stop the arms trafficking.

The Mexican leader said Trump also brought up the trade deficit between the two countries.

“I told him that, in reality it wasn’t a deficit, that we had a trade deal, that we were trade partners and that this was the result of being trade partners; and that either way it was the best way to keep competing against China and other regions of the world,” Sheinbaum said.

Trudeau similarly said he had a “good call” with Trump, adding that “Canada is implementing our C$1.3bn border plan — reinforcing the border with new choppers, technology and personnel, enhanced co-ordination with our American partners, and increased resources to stop the flow of fentanyl.”