Trump Throws Cold Water On Hopes Of Last-Minute Canada, Mexico Tariff Reprieve

Hopes for a last-minute reprieve on tariffs against Canada and Mexico dimmed Monday when President Donald Trump said the tariffs would go into effect as planned starting Tuesday.

Earlier on Monday, business leaders, leading market participants and economists were still guessing whether 25% tariffs against Canada and Mexico would go into effect, or whether Trump would walk them back at the last minute, as he did the month before. Last week, he said the tariffs were going ahead because the countries had not done enough to stop drug smuggling into the U.S., and that the U.S. was going to slap an additional 10% tariff on Chinese products.

“Tomorrow, tariffs, 25% on Canada and 25% on Mexico,” Trump said in televised remarks from the White House. “So they’re going to have to have a tariff. So what they’ll have to do is build their car plants, frankly, and other things in the United States.”

Earlier in the day, some analysts anticipated the tariffs would be delayed or watered down, while others were bracing for impact. The tariffs against Mexico and Canada were supposed to go into effect in February, but Trump delayed them by a month after both countries said they would bolster border security.

Although Trump and his top advisors have spent recent weeks talking up the economic benefits of tariffs—encouraging manufacturing in the U.S., and providing revenue to the government—there was reason to believe Trump could back down on at least some of his latest tariff threats.

Michael Pearce, chief U.S. economist at Oxford Economics, speculated that Mexico’s turning over of drug cartel operatives to the U.S. last week would allow Trump to claim a win, and delay the tariffs against Mexico, and that Canada would likewise get a reprieve. However, he saw it as unlikely all the announced tariffs would be avoided.

“Even if Canada and Mexico get a pass (this) week, Trump may well still go ahead with the additional 10% tariffs on China to show that he’s still walking the walk when it comes to his tough trade talk,” he wrote in a commentary.

Commerce Secretary Howard Lutnick said earlier Monday that Trump would decide that afternoon whether to proceed on tariffs against Mexico and Canada, and at what level. “They’ve done a good job on the border, but they haven’t done enough on fentanyl, and he has to decide how he wants to play it,” Lutnick told CNN.

Tariffs Would Spur Inflation, Economists Say

Some economists grappled with the uncertainty by pricing in the assumption that some but not all of the tariffs would go into effect. Pantheon Macroeconomics forecast consumer prices would rise 0.5 percentage points because of tariffs.

“We expect Mr. Trump to follow through with additional tariffs on major trading partners soon,” Samuel Tombs, Chief U.S. economist at Pantheon Macroeconomics, wrote in a commentary. ” It’s impossible to tell which mix of tariffs will be implemented and for how long, but we think our assumption of a 0.5pp uplift balances the risks.”

Economists at the Federal Reserve Bank of Atlanta said in an analysis last week that prices would increase on about a quarter of the things consumers typically buy, leading to an increase to the cost of living by anywhere from 0.8% to 1.6% depending on how much of the cost of the tariffs merchants pass on to consumers.