How Trump 'uses tariffs as a negotiating strategy' to pressure Mexico and Canada

The one-month delay to President Donald Trump’s 25% tariffs on Mexican and Canadian imports, announced and then postponed within 24 hours, highlights that this is not a traditional trade war.

Instead, Trump is using tariffs to pressure the USMCA trade partners, even though it is unclear whether they will make substantial concessions. The USMCA agreement was negotiated between the US, Mexico and Canada during Trump’s first term.

While the delay calmed financial markets, uncertainty remains high and Mexico’s fragile economy could even face recession if the tariffs are applied.

Trump postponed the announced tariffs on Mexico after a phone call with President Claudia Sheinbaum, in which both agreed that:

1) tariffs will be suspended for a month from February 3;
2) Mexico will deploy 10,000 national guard troops to the border to address drug trafficking;
3) the US will tackle the illicit flow of arms into Mexico; and
4) both countries will strengthen collaboration on security and trade.

“The pause on the tariff issue gives everything a break, the financial markets and the real economy, but it doesn't eliminate uncertainty because this issue will continue to be in the news and, surely before the month is out, we will be hearing Trump saying that he doesn't like the progress that Mexico and Canada are making or even that he believes there is no progress and the threats will continue,” James Salazar, deputy director of economic analysis at CI Banco, told BNamericas.

“This reinforces the idea that Trump uses tariffs as a negotiating strategy. In this context, uncertainty is expected to persist, as Trump will continue to use the threat of tariffs to achieve his goals,” Gabriella Siller, director of economic analysis at Grupo Financiero Base, wrote in a client report.

“In addition to stopping the flow of drugs and undocumented people, Trump could be seeking to advance the review of the USMCA, scheduled for July 2026,” she added.

Meanwhile, the Trump administration has not delayed the 10% tariffs on imports from China. In response, Beijing retaliated with a 15% tariff on US$5bn of energy imports, such as coal and liquefied natural gas from the US, and 10% on oil and agricultural equipment.

It also tightened export controls on tungsten, a key metal for electronics, aviation and defense. Given that China produces 80% of the world’s tungsten, this move could have broad implications.

Effects

Salazar highlighted that a test case of the effects the tariffs will have on the exchange rate was visible after the initial announcement, but the market also expected a delay.

“But let’s assume that the application of tariffs lasts for several months, then we could see negative reactions in the financial markets denominated in Mexican pesos, especially the exchange rate, which could reach 22 pesos per dollar or above 22 pesos,” said Salazar.

“Exports would surely be affected in part. Clearly, investment is also a factor because it would undermine confidence in many of the investments that are taken into account when defining Mexico as a destination due to the tariff advantages that come with having access to a larger market,” he added.

Salazar also said that these negative effects on the real economy in an already complicated year would increase the risk of stagnation or recession.