How Mexico and Canada handled Trump’s tariff threat

Claudia Sheinbaum, Mexico’s president, beamed as she announced on February 3rd that Donald Trump had agreed to delay imposing tariffs of 25% on exports from her country. The levy had been due to go into effect at midnight. “He asked how long I wanted; I said, ‘forever’,” she recounted, to laughter. She settled for a month. Hours later Justin Trudeau, Canada’s prime minister, announced a similar reprieve. (An additional tariff on China of 10%, on top of those already in place, went ahead.) A North American economic crisis has been narrowly avoided, for now.

Ms Sheinbaum (pictured) won praise at home and abroad for her handling of her mercurial American counterpart. Throughout the confrontation her demeanour was respectful but firm. When Mr Trump ordered tariffs on February 1st, she told her team to prepare countermeasures, but did not publicise the details.

Mr Trudeau took a more defiant stance. Faced with a 25% tariff on all goods but oil, which would be subject to 10%, Mr Trudeau announced retaliatory tariffs on C$155bn ($106bn) of imports from America. His negotiation for a stay took two calls, during which he was reportedly told that Canada could avoid tariffs by becoming the 51st member of the United States.

Mexico and Canada both agreed to increase security at their borders with the United States to address Mr Trump’s concerns about fentanyl trafficking and immigration. Ms Sheinbaum pledged to deploy 10,000 National Guard troops to Mexico’s northern border, adding to the 10,000 already stationed there. Mexican officials will work with their American counterparts on trade and security, as they already do on migration. Mr Trudeau reheated a border-security package worth C$1.3bn that was announced in December, and promised to appoint a “fentanyl czar”.

The moves were pragmatic. Some 80% of Mexico’s exports go to the United States. A 25% tariff could shrink its economy by 2-4% in 2025. Canada, which sends 77% of its exported goods south, would be only slightly less affected. But the tariff pause had as much to do with Mr Trump’s whim as with any real capitulation by Mexico and Canada. American businesses, in particular the auto industry, which would have been hard hit, lobbied aggressively.

Ms Sheinbaum had for months signalled willingness to deepen bilateral security co-operation. Mexican authorities have seized 20m doses of fentanyl since her term began in October. She claims to have convinced Mr Trump to consider cracking down on American guns flowing south, and to learn from Mexico’s public-awareness campaign about the dangers of consuming fentanyl. (Mr Trump omitted these points from his account of their “very friendly“ conversation.) Mr Trudeau, for his part, had already deployed additional police, drones and dogs to the border.

Ms Sheinbaum says she is confident that she can produce further results to keep Mr Trump’s mood placid. The authorities is likely to step up fentanyl raids and migrant crackdowns, and accept non-Mexican deportees. But substantive results on such complex issues will take more than a month, says Fernanda Caso, a political analyst. In the meantime the Trump team will probably be examining Mexico’s willingness to co-operate in practice, and the amount of money assigned to Ms Sheinbaum’s commitments.

Canada faces a tricky path, too. Neither fentanyl trafficking nor irregular migration is a major issue, despite what Mr Trump says. Nonetheless Canada’s government says its new fentanyl czar will work with American officials in “combating fentanyl”, that it will improve co-ordination with the United States, and invest another C$200m in anti-drug efforts. Canada is to follow the United States’ lead in classifying Mexican drug gangs as terrorist organisations. Mr Trudeau steps down as prime minister on March 9th, having announced his resignation last month.

Both countries are dispatching officials to Washington to push back against Mr Trump’s economic grievances—starting with trade deficits. If imports of Canadian oil are excluded, for instance, the United States runs a trade surplus with its northern neighbour. Yet Mr Trump’s core beliefs are harder to counter. He thinks tariffs will generate revenue and force firms to make more products in the United States. His claim on February 1st that Mexico’s government has an “intolerable alliance” with drug gangs that operate in the country—which Ms Sheinbaum has called “slander”—may yet resurface. Even if Ms Sheinbaum wants to confront the collusion which often exists at local-government level, doing so will be hard.

Neither Mexican nor Canadian officials are resting easy. Both think it likely that Mr Trump will at some point follow through and impose tariffs, at least on a subset of imports. They are certain that he will use tariffs as leverage during a forthcoming renegotiation of the United States-Mexico-Canada free-trade agreement (USMCA). Mr Trump signed the USMCA in 2020, but he always maintained that he wanted it scrapped. Now he wants to renegotiate it ahead of the scheduled review in 2026. The uncertainty alone will stifle investment.

Now is a “very good moment” to strengthen the region’s trade and economic security, says Luis Rosendo, Mexico’s undersecretary for foreign trade. Officials and businesspeople across North America may draw a different conclusion. Mr Trump’s propensity to bully allies and gamble with economic stability makes the United States an unreliable partner. Even as they seek to stave off American tariffs, they will also be looking for ways to reduce their dependence on their powerful, volatile neighbour. ■