Tariff Discussions on Hold Due to Drug Trafficking Issues
In a notable shift in diplomatic relations, U.S. President Donald Trump and Mexican President Claudia Sheinbaum reached an agreement on Monday to pause their proposed tariffs for a month, creating space for further negotiations. This decision comes amid ongoing drug trafficking concerns, prompting Mexico to announce the deployment of 10,000 National Guard members to enhance border security.
While tariffs targeting Canada and China are still slated to be enacted on Tuesday, there is considerable uncertainty about the durability of any potential agreements, especially as Trump has hinted at more import taxes in the future, raising fears of a broader trade conflict.
The decision to pause the tariff discussions was announced by the leaders after what Trump referred to as a “very friendly conversation” on social media, expressing hope for the upcoming talks.
Trump also disclosed that Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick would spearhead the negotiations alongside prominent Mexican officials.
“I am looking forward to engaging in these negotiations with President Sheinbaum as we work towards a mutually beneficial ‘deal’,” Trump stated.
Before the discussions, Sheinbaum proposed changes to border policies, with Trump confirming Mexico’s commitment to sending troops to address the situation.
“Mexico will promptly bolster its northern border with 10,000 National Guard members to tackle drug trafficking, especially fentanyl, entering the United States,” Sheinbaum shared on X. “In return, the United States will assist in reducing the influx of high-powered weapons into Mexico.”
Earlier, Trump mentioned on social media that he had spoken with Canadian Prime Minister Justin Trudeau and intended to follow up with him later in the day. Both Canada and Mexico had contemplated retaliation through tariffs in response to U.S. actions; however, Mexico has opted to postpone its measures for the time being.
In his remarks, Trump reiterated his dissatisfaction with Canada, pointing out what he perceives as a lack of cooperation despite a long-standing partnership between the two nations since World War II.
“Canada doesn’t even allow U.S. banks to operate there,” Trump noted. “What’s happening there? There are numerous challenges, but this is also intrinsically linked to the DRUG WAR, with countless lives lost in the U.S. due to drugs flowing across borders from Mexico and Canada.”
As the financial markets, businesses, and consumers prepare for the likelihood of new tariffs, stock markets experienced a slight decline, reflecting some optimism that the import taxes may only be temporary and not lead to lasting inflationary pressures or disruptions in global trade.
However, the atmosphere remains charged with uncertainty concerning a Republican president who has shown a penchant for tariffs, even suggesting that the U.S. made a mistake in 1913 by shifting to income taxes as its primary revenue source.
Trump indicated on Sunday that the tariffs could be rescinded if Canada and Mexico took additional actions to address illegal immigration and fentanyl trafficking, although he did not provide specific criteria for these measures. He also stressed that the U.S. could no longer endure a trade deficit with its two largest trading partners.
Mexico is facing a proposed 25% tariff, while Canada would be subjected to a 25% tariff on its imports to the U.S. and a 10% tariff on its energy products. Additionally, China may incur another 10% tariff due to its role in fentanyl production and distribution, as per the Trump administration.
Kevin Hassett, director of the White House National Economic Council, remarked on Monday that it would be misleading to characterize the situation as a trade war, despite the proposed retaliatory measures and the potential for escalation.
“Refer to the executive order where President Trump made it clear that this is not a trade war,” Hassett stated. “This is a drug war.”
Nonetheless, Trump’s remarks frequently emphasize his belief that foreign nations are exploiting the U.S. by maintaining trade surpluses. On Sunday, he also hinted at the possibility of imposing tariffs on European Union countries, viewing tariffs as a means to address national security concerns, generate revenue, and renegotiate existing trade agreements.
Economists outside the administration have warned that the tariffs could lead to higher prices and a slowdown in economic growth, despite Trump’s earlier campaign promises to keep inflation in check.
Joe Brusuelas, chief economist at RSM, mentioned that while a recession in the U.S. this year seems unlikely, the tariffs would adversely affect growth and increase government borrowing costs, potentially leading to higher interest rates on mortgages and auto loans.
“If a resolution isn’t reached, the economic repercussions for the U.S. could be significant,” he cautioned. “Growth may decline sharply from the 2.9% average of the past three years as inflation and interest rates rise. The yield on the 10-year Treasury, currently around 4.5%, might increase to between 4.75% and 5%.”
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Sherman contributed to this report from Mexico City.
