Markets post modest recovery after Trump delays tariffs on Mexico

Markets recovered some ground on Monday afternoon after last minute concessions persuaded Donald Trump to delay imposing tariffs on Mexico.

But investors in many parts of the world were still left nursing heavy losses, having underestimated the risks around the President’s trade plans.

Over the weekend, the US announced 25 per cent additional tariffs on imports from Canada and Mexico, as well as a 10 per cent additional tariff on China.

The tariffs, which were due to start on 3 February, will remain in place until a “national emergency” of fentanyl and illegal immigrants entering the country are addressed, Trump said.

However, following a call with Mexican president Claudia Sheinbaum, Trump agreed to push back the tariffs on Mexico by a month.

“I just spoke with President Claudia Sheinbaum of Mexico,” the President posted on Truth Social on Monday afternoon.

“It was a very friendly conversation wherein she agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States. These soldiers will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country.”

The news helped the S&P 500 to recover some ground. It was trading around 0.6 per cent lower approaching midday, having opened around 1.5 per cent lower. Similarly, the tech-heavy Nasdaq index was down around 1.0 per cent lower, having shed 1.9 per cent at the opening bell.

European indexes were lower across the board, despite a small bump after Mexico’s reprieve was confirmed. The FTSE 100 closed 1.0 per cent lower, while the CAC 40 in Paris lost 1.3 per cent and the DAX 40 shed 1.5 per cent.

“As news broke in the afternoon that tariffs against Mexico would be postponed for a month, hopes for renewed negotiation tactics resurfaced,” Konstantin Oldenburger, Market Analyst, at CMC Markets.

Still, Jim Reid, head of research at Deutsche Bank, said the size of the hit showed that markets had been “under-pricing the risks” from tariffs.

“All Trump did was follow through on exactly what he’s been saying he’s going to do since November. The market has refused to take that threat seriously,” he said.

Although Mexico managed to secure a delay, a report in the New York Times suggests Canadian officials expect no such luck for Justin Trudeau.

Canada has pledged to institute a 25 per cent tariff on $155bn of US goods, with $30bn set to start tomorrow.

Former Bank of England governor Mark Carney, who is seen as the favourite to replace Canadian prime minister Justin Trudeau, vowed that Canada is “going to stand up to a bully”.

China, Mexico and Canada make up around 40 per cent of imported US goods, at around $1.4 trillion.

Trump signalled that the European Union would likely be the next target. “The European Union, it’s an atrocity what they’ve done,” he said.

Asked if he would target Britain, the President said:

UK is out of line but I’m sure that one… I think that one can be worked out.

Trump added however, that Prime Minister Keir Starmer had “been very nice”.

“We’ve had a couple of meetings. We’ve had numerous phone calls. We’re getting along very well.”

Investors hope that the UK can avoid the worst of Trump’s tariff ire. The pound recovered all of the ground it had lost during the day, and was trading just under $1.24 around market close.

Since markets closed on Friday, bitcoin, which recently has begun to closely track the Nasdaq, has fallen almost 10 per cent, dropping back below $100,000.

But the cryptocurrency made gains on Monday, having also lost a lot of ground earlier in the day, rising 1.4 per cent to hover just above $99,000.