U.S. President Donald Trump [Source: Reuters]

U.S. President Donald Trump paused new tariffs on Mexico for one month after Mexico agreed on Monday to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal drugs.

The agreement also includes a U.S. commitment to prevent trafficking of high-powered weapons to Mexico, Mexican President Claudia Sheinbaum said on X. The two leaders spoke by phone on Monday, just hours before U.S. tariffs on Mexico, China and Canada were set to take effect – steep levies that economists say would cause widespread economic harm, including raising prices for U.S. businesses and consumers.

The U.S. and Mexico will use the month-long suspension to engage in further negotiations, Trump said on social media.

The agreement comes less than 48 hours after Trump announced sweeping tariffs on goods from the top three U.S. trading partners – accounting for $2.1 trillion of annual commerce – was emblematic of the often chaotic nature of the early days of his second presidency. While the deal eases the pressure for now on Mexico, prospects for a comparable reprieve imminently for Canada and China appeared dim, as Trump and his team kept up their criticism of the U.S. northern neighbor in particular.

Trump said on Monday he had spoken with Canadian Prime Minister Justin Trudeau and would do so again at 3 p.m. ET (2000 GMT). The tariffs on Canada and China remain poised to begin at 12:01 a.m. on Tuesday (0501 GMT Wednesday), and Canada has announced retaliatory tariffs.

A senior Canadian official told a New York Times reporter that Ottawa is not optimistic a similar reprieve is in the offing, the reporter said on X.

Fears of a deepening trade war and the economic damage it could cause sent U.S. and global stocks lower, although the announcement of the one-month waiver for Mexico helped reverse some of the decline. The benchmark S&P 500 was down 0.6% around mid-afternoon, cutting its losses on the day by more than half. The surprise turn of events also relieved some of the pressure on Mexico’s peso.

Speaking in Washington on Sunday, Trump suggested the 27-nation European Union would be his next target, but did not say when.

EU leaders at an informal summit in Brussels on Monday said Europe would be prepared to fight back if the U.S. imposes tariffs, but also called for reason and negotiation.

Chancellor Olaf Scholz of Germany said the bloc could respond if necessary with its own tariffs, but stressed it was better for the two to find agreement on trade.

Trump hinted that Britain, which left the EU in 2020, might be spared tariffs, saying: “I think that one can be worked out”.

The U.S. is the EU’s largest trade and investment partner. According to the Eurostat data from 2023, the United States had a deficit of 155.8 billion euros ($161.6 billion) with the EU in the trade of goods, offset by a surplus of 104 billion euros in services.

EU foreign policy chief Kaja Kallas said there were no winners in a trade war, and if one broke out between Europe and the United States, “then the one laughing on the side is China”.