Wall Street claws back losses after US and Mexico agree to pause tariffs for one month

The Dow Jones Industrial Average nearly completed a major comeback on Monday, clawing back almost all of its losses after President Donald Trump agreed to delay imposing a 25 per cent tariff on Mexican goods by a month.

The announcement came shortly after a phone call between Mr Trump and the Mexican President Claudia Sheinbaum. The leaders said in social media posts that Ms Sheinbaum had agreed to send 10,000 soldiers to the southern US border to help halt the flow of fentanyl into the country. “We further agreed to immediately pause the anticipated tariffs for a one-month period during which we will have negotiations,” Mr Trump posted on Truth Social.

The Dow was down 122.75 points – or 0.28 per cent – to 44,421.91 when trading closed in the US after falling more than 600 points earlier in the day. The S&P 500 closed 0.76 per cent lower, also regaining most of its losses, while the Nasdaq Composite dropped 1.20 per cent.

"At the beginning of the day, no one was negotiating and I think everyone took the negative notion of it," said Peter Andersen, founder of Andersen Capital Management. "I think we're seeing a case study of how [tariffs are] going to work."

US markets nosedived earlier in the day as traders began a sell-off in response to Mr Trump's announcement that he would impose a 25 per cent tariff on goods from Mexico and Canada, as well as a 10 per cent levy on Chinese imports. The initial set of tariffs were due to be enacted on Tuesday.

Canadian Prime Minister Justin Trudeau said Canada and the US had also agreed to a one-month delay of proposed tariffs after he said he would increase co-operation with US troops at the US southern border.

“Trade tariffs are first and foremost a shock-and-awe tool used for negotiations,” economists and research analysts at Julius Baer wrote.

“Their imposition should remain temporary, bearing somewhat contained inflationary impacts within the United States, and meaningful deflationary impacts outside the United States. As expected, we have entered a period of political noise and general uncertainty, an element that framed our views heading into 2025.”

Actions against China have so far not been paused.

European markets also made back some losses after the pause was announced. Europe's Stoxx 600 closed lower by 0.93 per cent, while the UK's FTSE 100 fell by 1 per cent. Germany's DAX closed 1.5 per cent lower and the CAC40 was down 1.20 per cent.

Markets in Asia, which had closed before the pause on Mexican tariffs was announced, also closed lower. Japan's Nikkei Index slid 2.66 per cent to close at 38,520.90, while South Korea’s Kospi fell 2.52 per cent and Hong Kong's Hang Seng closed 0.039 per cent lower.

Chinese markets were closed for the Lunar New Year holiday. China's ambassador to the UN, Fu Cong, said Beijing is filing a complaint at the World Trade Organisation, arguing the tariffs are in breach of WTO rules.

"There is no winner in a trade war and we do hope that the US should look at his own problems," he said, referring to the flow of fentanyl into the US.

Mr Trump's tariffs sparked fears of a brewing trade war between the US and its three largest trading partners. Mexico, Canada and China made up 41.1 per cent of total trade for the US last year, according to the Census Bureau. The actions increased fears of a disruption in the supply chain.

“The latest set of tariffs will lead to weaker GDP growth, higher unemployment, higher interest rates and higher inflation this year in Canada, Mexico and the US,” Oxford Economics chief economist Ryan Sweet wrote to clients.

Mr Trump warned at the weekend that tariffs against the EU could be next, citing trade deficits.

Adla Massoud contributed to this report from New York