On the first day of the first full month of Donald Trump’s second term as President, he announced a 25% tariff on all imports from Canada and Mexico. The announcement sent businesses and markets into a frenzy. At the eleventh hour, both Mexico and Canada announced that deals had been struck with the United States to pause the rollout of the tariffs for 30 days. Speculation abounds on whether the duties will remain and, if they do, whether they will remain unchanged over the next month. Given Trump’s record as a deal-maker, Mexico’s and Canada’s willingness to deliver on recent promises and negotiate further will determine the United States’ final trade policy.
One does not have to go far back in history to find instances of Trump using tariffs and other high-flying threats as bargaining chips. Within the first few days of his second term, Colombia rejected a US plane filled with expatriates. Trump acted quickly and threatened to impose 25% tariffs on the South American nation unless it began receiving all deportation flights, which it promptly agreed to do. During negotiations with South Korea during his first term, Trump instructed his chief trade negotiator Robert Lighthizer to tell the Koreans that he was a “crazy guy” and could pull out of the Korean trade deal “any minute.” The US and South Korea later agreed on a new, renegotiated deal. These incidents suggest that Trump’s first demands are often far from the final destination he has in mind.
If Trump’s endgame is not massive tariffs on the United States’ North American neighbors, then what is? This demand seems to be focused on stopping the flow of fentanyl and illegal immigration or reaching a new trade agreement. These demands are not new to Trump. In 2019, Trump threatened a 5% tariff on all Mexican imports unless the country stopped illegal migrant crossings. In response, Mexico sent troops to the border under threat of tariffs by Trump, and it seems to have had some mitigating effect. This time around, Trump may be watching the statistics on drugs and migrant crossings to determine the future of US tariff policy.
The statements from both Mexican and Canadian leaders suggest a focus on border security and drug trafficking. In an X post on the temporary pause of tariffs, Prime Minister Justin Trudeau promised 1.3 billion for border security, to designate the cartels as terrorists, and to create a Canada-US joint strike force on money laundering and fentanyl. President Sheinbauma of Mexico promised 10,000 troops to cities along the southern border in Operation Northern Border. The 30-day deadline still looms, and Trump may be setting up a test of promises made by Canada and Mexico.
Trump’s rhetoric on deals and history of renegotiation infers that there is a second pathway to avoid tariffs outside of improved border numbers in such a short time. In announcing the temporary deal with Mexico, Trump said on X that he hopes to achieve a “deal” between the two countries. It is also possible that continued negotiations between Canada and the United States could result in a similar long-term deal. Ostensibly, this means a reworked trade and border deal, but the administration’s exact wishes are unclear.
If the tariffs go into effect as previously stated, the effects on the US economy would be significant. Shortly before the pause was announced on Monday, the stock market tumbled in anticipation of the trade policy. 25% tariffs would affect produce, car prices, and construction materials. There is some reason to believe that Trump will follow through if his administration is not content with border security or trade concessions. One thing that Trump may want to avoid more than bad coverage from tariffs is the appearance of weakness and conciliation. Though the tariffs could have positive impacts in the long run if sustained over decades, this is unlikely given the term limits on presidents. However, given his record, there is reason to believe, indeed to hope, that much will change in a month.
The actions already undertaken by Mexico are significant, but their lasting effect is yet to be seen. Canada has yet to implement its various plans, but it is still early. It is also possible that Canada and Mexico will grant concessions in other ways, but only time will tell on this front. If the terms strike him as fair, Trump has shown he will back down from his initial public demands and pursue a moderated path.