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Canada and Mexico Win Tariff Reprieves as Trade Upheaval Rattles Markets

Markets, which began the day in an initial panic as Trump promised tariffs, recovered to a more cautionary footing.

Photo of Claudia Sheinbaum
Photo by EneasMx via CC BY 4.0

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Wall Street firms rely on a vast and sophisticated array of data points — public and proprietary — pored over by the most brilliant economic minds, backed by the most advanced technology, to make decisions every day. On Monday, they were left to rely on refreshing the CNN liveblog.

Investors spent the day scrambling to react to a hectic day of news from Washington as President Donald Trump went into the day promising to enact 25% tariffs on Mexico and Canada, only to agree to hold off for 30 days.

Trading in Spreadsheets for Tea Leaves

Mexico and Canada were both granted a reprieve from Trump after Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau held separate phone calls with the president and agreed to implement a series of measures to clamp down on drug trafficking and illegal border crossings.

Markets, which began the day in an initial panic, recovered to a more cautionary footing. The S&P 500 fell 0.7% on the day, paring most of an intraday morning loss of 2%. Canada’s blue-chip TSX Composite slipped 1.1% after earlier intraday losses neared 3%. Now, with the tariff clock restarted at 30 days, investors have been left poring over political tea leaves as much as spreadsheets:

  • “At this point, we are doubtful that the tariffs on Canada and Mexico will be long lasting, if enacted at all,” Keith Lerner and Michael Skordeles at Truist Advisory Services said in a note, hinting Trump’s actions look more and more like shock bargaining tactics. Up next on the political front: China, which Trump has threatened with 10% tariffs, said Monday that it will file a lawsuit at the World Trade Organization, whose rulings even the Biden administration ignored.
  • But if negotiations fail and if Trump isn’t bluffing, the economic fallout will sting: Goldman Sachs analysts said in a note that US stocks could slump 5% in the coming months if the tariffs are implemented, with an average 2% to 3% hit to the earnings of listed companies. Oxford Economics analysts said the tariffs could shave 0.7 points off of US GDP growth and hit Canada and Mexico “even harder.”

Stupid Economics: Wall Street banks, in particular, were hit with a cold dose of reality when Citigroup, Morgan Stanley, JPMorgan Chase, and Goldman Sachs shares dipped in morning trading. The KBW Bank Index finished the day down 1.5%, paring losses that neared 3% in intraday trading. “The annoying part about banks is they get caught up in macro trades they have nothing to do with,” Truist’s Brian Foran said in an investor note. “At first glance, it feels wrong to see banks move on trade wars, but to quote the old phrase ‘It’s the economy, stupid.’”