Tariff threats don't hit like they used to.
Trump roiled markets early in Asian trading with a threat of 25% tariffs on Mexico and Canada. Bizarrely, he tied both tariffs to border security. Now I understand the sentiment on Mexico, which is something he's been campaigning on forever but there's not exactly a stream of illegal immigrants coming from Canada.
"I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders," he wrote. " This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!"
The loonie and Mexican peso recoiled from this but both should be breathing a sigh of relief, particularly Canada. There simply isn't a stream of illegal immigrants going into the US from Canada (though I'm sure there are some). As for Mexico, they have had plenty of time to get on top of this and I'm sure there are some levers they can pull to appease the tweeter-in-chief.
The upshot here is that both can roll out some programs -- some token ones in Canada's case -- and presumably be free from the threat of tariffs for four years. Now I don't doubt that Trump will repeatedly threaten them in that time but this doesn't sound like a serious threat.
During the campaign, he also promised to renegotiate NAFTA again but he mainly focused that on trans-shipment, which is another problem that can be solved without any real domestic consequences for Canada and Mexico.
The market is slowly sorting it out. USD/CAD spiked to a four-year high on the announcement but it's retraced about a third of the move.
I think the hesitation in retracing more is that Trump is going to threaten -- and likely implement -- other tariffs and that ratchets up risks around global growth. The market was excited about Scott Bessent's moderating influence yesterday but no one is going to stop Trump's tariff-first agenda.
What's puzzling me most is the delivery here, it just doesn't sound credible. The name of Trump's game has always been making wild threats and then negotiating, I just don't see the latest move as a strong opener.
