The Daily - How North America Averted a Trade War — for Now

Episode Date: February 4, 2025

North America came within hours of a multibillion dollar trade war that was poised to hobble the economies of Mexico and Canada.The Times journalists Ana Swanson, Matina Stevis-Gridneff and Simon Romero discuss the last-minute negotiations that headed off the crisis — for now.Guests: Ana Swanson, who covers trade and international economics for The New York Times; Matina Stevis-Gridneff, the Canada bureau chief for The New York Times; and Simon Romero, an international correspondent for The New York Times based in Mexico City.Background reading: President Trump agreed to delay tariffs on Mexico and Canada for a month after both countries pledged to do more to block drugs and migrants.What does Mr. Trump really want from Canada and Mexico?For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. Photo: Jeff Kowalsky/Agence France-Presse — Getty Images Unlock full access to New York Times podcasts and explore everything from politics to pop culture. Subscribe today at nytimes.com/podcasts or on Apple Podcasts and Spotify.

From the New York Times, I'm Michael Bobarro. This is The Daily. On Monday, North America came within hours of a multi-billion-dollar trade war that was poised to hobble the economies of Mexico and Canada. Today, my colleagues Anna Swanson, Matina Steves-Gridneff, and Simone Romero are on the last-minute negotiations that headed off the crisis for now. It's Tuesday, February 4th. So friends, welcome. Anna, you are joining us from Washington, D.C., Matina from Toronto, Canada, and Simone

from Mexico City. Thank you all for being here on very short notice. We appreciate it. Thanks. Thank you. Good to be here. Thanks for having us. And the reason we wanted you to be here is because we want to make sense of a very fast-moving story playing out in all three of the countries where you are based involving the leaders from each of those countries that brought us to the verge of a historic and very consequential trade war between them.

Anna, I want to start with you. What had been President Trump's original plan for what this morning would look like? The plan before the plan changed. Yeah, his plan was to impose sweeping tariffs on America's three biggest trading partners. So a 25% tariff on Canada and Mexico virtually across the board, except a lower tariff on Canadian oil, and 10% tariff on China. And that would include everything from cars, lumber, natural gas, beer, vegetables,

pretty much everything that we're importing from those countries. Okay. And let's put China aside for just a moment since it has felt like this was primarily about our neighbors to the north and south Canada and Mexico. I want to put the impact of 25% tariffs into perspective for both countries as conceived of over the past few days by Trump. What would it do to each of them and in turn, I guess, to US consumers? Matina, let me start with you. Well, Michael, we should start by saying that the three economies have just been so deeply integrated because of existing free trade agreements that have been put in place and then renegotiated

over the past several decades. And so for Canada specifically, the impact would be catastrophic. Economists predict that such tariffs would tip the Canadian economy into a recession and we could see hundreds of thousands of jobs lost. For example, in the province of Ontario, which is the heart of the Canadian automotive industry, the predictions are that up to half a million people could lose their jobs.

So it would be truly meaningful and devastating for the Canadian economy and for Canadians. And Simone, putting aside the developments of Monday for just a moment, in theory, what would 25% tariffs mean for Mexico if slapped on it from the United States? You know, there really was a huge amount of fear and trepidation about these tariffs. There was the expectation that they would cause a devastating blow to Mexico's economy. And this is really mainly because, you know, Mexico, more than any other major economy in the world, relies on trade with the United States. Mexico exports 80% of its exports to the US. So it was just extremely vulnerable going

into this situation. There was an expectation that it could take two percentage points off of GDP in Mexico that would essentially push the economy into a recession. So there was a great deal of concern about the impact that this could have. Right. And I can see why we're talking about two recessions here, one in Canada, one in Mexico, if these tariffs were to go in effect as planned. And Ana, what was the stated rationale from President Trump for these tariffs against Canada and Mexico?

Well, according to the president, it's been pretty much all about the border. So he really was trying to pressure these countries, he said, to do more to stop flows of migrants and to stop shipments of fentanyl coming across the border. However, in the last couple of days, he also kind of mixed in the trade deficit. He said that these countries sell a lot more to the United States than they buy from them and they would also have to fix that problem. But it seems like it is mostly about the border, which is sort of his number one domestic policy issue right now.

Right. And those are, of course, claims that we tend to associate with Mexico, not so much with Canada. So just from a fact-checking perspective, Matina, how real an issue are migrant border crossings and fentanyl entering the United States from Canada? Well, the facts show that as far as the fentanyl is concerned, Canada has its own opioid crisis at home. But the fentanyl crossing from Canada into the United States is a tiny amount of the total, about 1%.

1% of all fentanyl entering the United States. Correct. For example, data shows that last year, 19.5 kilograms or 43 pounds of fentanyl were found crossing from Canada into the United States. And what about migrants? When it comes to irregular crossings at the Canada-United States border, that is also a really tiny fraction of the total of irregular migrants crossing into the United States, a fraction of what happens at the southern border, for example. But that number had gone up in the last three years. There had been a market increase of those crossings. However, since June, those crossings are down 89%, according to Canadian

statistics. And that's because of a number of changes that Canada implemented at the northern border and its visa processes that have severely curbed those crossings. Got it. So that's a helpful perspective. I want to talk about the reaction from both Canada and Mexico, especially over the weekend when President Trump made clear in his telling this was not going to be a bluff, that these tariffs were going to begin Tuesday morning, 1201. Matina, I know we just heard from you, but I want to begin with Prime Minister Justin

Trudeau. He sounded, interestingly, both kind of rueful and quite forceful at the same time. And I think that's what the tone he was aiming for was. Tonight, first, I want to speak directly to Americans, our closest friends and neighbours. This is a choice that, yes, will harm Canadians, but beyond that, it will have real consequences for you, the American people. He came out in a Saturday evening address flanked by all his top ministers, and then he laid out what was an already anticipated retaliatory plan. I am announcing Canada will be responding to the U.S. trade action with 25 percent tariffs against $155 billion

worth of American goods. He said, we don't want to be here, but this is where we are and we have to stand up with pride for our country. We will stand strong for Canada. We will stand strong to ensure our countries continue to be the best neighbors in the world. And he said that that plan would escalate if the United States didn't back down. What's an example of one of the products that he would tariff in a retaliatory manner at 25%?

It might be kind of interesting to name it. Bourbon, chickens, tomatoes, dishwashers. It's a long list of goods. Meant to hit, it sounds like, Americans at different geographies and it seems like income levels. Absolutely. And in briefings and interviews I've done with Canadian officials, did the run up to the tariff imposition, they had made it clear that those tariffs were surgically selected

in order to hit particularly red and purple states to make sure representatives there would pick up the phone and call Mr. Trump and say, please make this stop. It's hurting us. Burman, of course, Kentucky, Senator Mitch McConnell, Republican. Simone, what's the reaction from Mexico's leader when Trump lays this out and says, it's going to happen. It's going to happen fast. It's going to happen, it's going to happen fast,

it's going to happen big? Well, it was really interesting. Mexico's president, Claudia Schoenbaum, had quite a measured response to the announcement of these tariffs. I think we have to remember this isn't Mexico's first rodeo with Trump. Members of her administration have been through this experience during the first Trump administration when tariffs were imposed on some Mexican products and Mexico retaliated at that time and they ended up actually renegotiating the entire free trade agreement for North America and really it ended up being quite advantageous for

Mexico in the end. However, it was a challenge for her to respond over the weekend because in Trump's executive order, he made a remark that was kind of incendiary in Mexican politics when he said that the Mexican government has an allegiance with drug cartels. That's kind of an explosive statement to make, and so she pushed back on that. She also said something really interesting. She brought up an issue which has really seen this way in Mexico, but perhaps not in the United States, which is that fentanyl is an issue of domestic demand in the U.S., that there would not be a crisis if there were not demand for this illicit substance among

Americans. And so she really called on the U.S. to do more to solve the problem within its own territory. In addition to that, she also raised the issue of guns. Mexico is waging a legal battle in the U.S. right now over guns that are smuggled from U.S. gunshots into Mexico that are smuggled from U.S. gunshots into Mexico that are supplied to the cartels that really feed into the violence in the country. So she brought up those important points while at the same time making it clear that she

was still ready to talk and keep on negotiating. Right. I mean, her point was, I'm willing to negotiate, but you should know that your drug and violence problem is your drug and violence problem, not necessarily our making. And Ana, I want to ask you something. As both of these neighboring countries are essentially saying to President Trump, a version of this feels like a manufactured standoff and crisis. I think those of us who have studied Trump's relationship to tariffs for some time and remember especially how he campaigned

on them originally in 2016, we tend to think about the purpose of tariffs to Trump and to the entire MAGA movement as weapons that induce not border security, but a restoration of domestic manufacturing. But that's not what Trump seems to be up to here. And that's not how the leaders of Canada and Mexico see him operating right now. Yeah, so typically tariffs are used for trade reasons to balance out unfair trade and relationship.

And Trump definitely thinks about tariffs in that way too and has plans for that type of tariff. But you're right here, it's all about using tariffs as a negotiating tool, as a source of leverage for things having little to do with trade, the border and fentanyl. And I think what's happened is that President Trump has just discovered that tariffs are a really powerful tool and one that's immediately available to him as a president. He issued these tariffs using an executive order where he created a national emergency and then he could go ahead and issue them right away. So he sees that as just a really powerful tool to force other countries to make concessions

to him. Right. And of course, that leaves a message to everybody involved in this standoff that he's very open to negotiation because it's not a long-term economic strategy the way we have thought about it. Okay. So Monday morning dawns and, Simone, the US stock market does not like these impending tariffs. And the question is, will Trump actually go through with it?

It was incredible that Peso was crashing, stocks were under a lot of pressure. And yet there still was a sense really among business leaders in the business establishment that this could be solved before that Tuesday deadline. They've been through this before, they know how this works, they know that Trump sometimes sets like a really high bar to begin with, and then the negotiations really get underway. And really that seems to be what happened here. There was an expectation that President Scheinbaum was going to speak to the nation at a scheduled time on Monday morning. Everyone was waiting for that to happen.

Suddenly the minutes started going by and she was late and starting. And then we all found out that these two leaders were talking by phone to one another and that they finally reached a deal that would avoid these tariffs for at least the next 30 days. Okay, we're gonna take a break and when we come back, we're gonna talk about that deal. We'll be right back. So, Simon, what are the terms of this deal with Mexico that was reached when everyone didn't even know the two of them were on the phone and all of Mexico was waiting to hear from its president? Well, it was really interesting.

Mexico agreed to deploy 10,000 National Guard soldiers to the border with the United States to combat the trade and illicit drugs and also to really curb the flow of migration into the United States. On the flip side of that, Mexico was able to show a win in those negotiations with Trump when Mexico's president said that the US had agreed to help curb the flow of US guns heading into Mexico, which is a big issue for Mexican's government.

Those were the basic terms that were ironed out on Monday. Okay. The recent historian in me wants to point out that President Biden had persuaded Mexico, I believe in 2021, to add 10,000 troops to the US-Mexico border to enforce the border. Is this going to be in addition to those? Is it bringing them back? Should we doubt the meaning of adding 10,000 troops when it happened four years ago without a major standoff over tariffs?

Well, it is hard to tell exactly what happened to those troops that were deployed in 2021. We also have to remember that there was a previous deployment of Mexican troops back in 2019. So this has happened before, you know, this is the third time in six years that we're seeing a major deployment of Mexican troops to the border at the behest of the United States. So really the question is right now, what are those troops realistically going to be able to do, you know, when we have those boots on the ground, will they make a difference?

Because it's not clear whether they made much of a difference before. Of course, the conditions right now on the US-Mexico border are really different. It's actually remarkably calm at the moment. Illegal crossings across this border are at their lowest level since 2020. The border is very calm for a combination of reasons. Part of this are asylum restrictions that the Biden administration put in over the past year. Part of this has to do with the Mexican government's

own actions, right? They have been breaking up migrant caravans long before they make it to the border with the US. They've also been detaining migrants at levels rarely seen before in recent history in Mexico. So this has resulted in really a sharp decline in illegal crossings at that border. And one other thing I want to say about this is if

the goal is to address not only migration, but the flow of illegal drugs across the border, Mexico sending thousands of National Guard soldiers to the border is really going to do very little to attack that problem. Because while President Trump and other leaders in the Republican Party have argued that migrants are responsible for taking

a lot of the fentanyl across the border into the United States, actual US government evidence and statistics show that that's not the case. US citizens overwhelmingly are the ones who are smuggling fentanyl into the US. So it's not like the fentanyl crisis is going to be solved in one month. It's not going away. It's not clear if the deployment of soldiers is going to do much about it either. That's fascinating. So given that, Ana, how should we think about this?

Is this Mexico capitulating to Trump or Trump capitulating to Mexico? Should we see this as a genuine victory for US national security or mostly symbolic because the reporting that Simone is describing suggests there's not exactly a migrant crisis of the scale we're used to thinking of at that border? Yeah, well, I think both sides are eager to try to turn this into a symbolic and political victory for themselves, kind of regardless of what the terms of it are. And so the issue with judging whether or not they've made real gains here is that, you know, particularly for Trump, the requirements that he was asking for to satisfy him

were kind of vague and subjective. So it was never really clear, you know, what exactly Mexico needed to do to get these tariffs off. So it's really up to the president to define what a win is. And I think he's going to find some way to proclaim a win for himself here. And then of course, Metina leaves Canada kind of flapping in the wind here. What happens there as Mexico's leader seems to adeptly navigate this dynamic with Trump and sidesteps temporarily at least these tariffs. What happens with Prime Minister

Justin Trudeau? Jessica Morrison Justin Trudeau also has a phone call with President Trump in the morning of Monday, but it goes very, very differently to the call he had with Scheinbaum. As we understand it, President Trump brings up other issues that are unrelated to the border, such as access for U.S. banks in the Canadian market, and they hang up without a deal. Then they make a date to speak again at 3 p.m. Eastern.

While we're waiting for this call to take place, I think we're going to have another good conversation today. We're actually speaking at three o'clock again. Donald Trump is in the Oval Office and he takes the opportunity to weigh in on what's going to happen on his phone call with Justin Trudeau. And he says, look, what I'd like to see Canada become our 51st state. Well, basically, I want Canada to be the 51st state of the United States. Why are we willing to lose between a hundred billion and two hundred billion dollars a year?

We don't need them. As a state, it's different. As a state, it's much different. And there are no tariffs. So I'd love to see that. But some people say that would be a long shot. This is something that started off as a joke, and Canadian officials actually pointed out to me that he made this joke during his first presidency, but he has been really repeating it over and over again in the standoff with Canada. Right, and can we just say what an astonishing thing that is that in between two phone calls with Prime Minister

Trudeau, what he's basically saying from the Oval Office is the easiest way to avoid tariffs is to become a United States state. I mean, just kind of deeply unusual. I think deeply unusual is one way to put it. Also aggravating, terrifying, upsetting to many Canadians who are seeing the country they thought was their best friend, closest ally. As Trudeau said on Saturday night, we've spilled blood next to you in multiple wars over the decades. That's really, really hard.

And it also just highlighted something Canadians were already suspecting that perhaps it wasn't really about the border. Perhaps President Trump had other things on his side. And then, of course, we actually get this second call between Trudeau and Trump. But just tell us what happens. The call goes on for at least 45 minutes. And at the end of it, Justin Trudeau puts out a statement that says, we have a deal. We should say this was just moments ago.

It was literally four minutes ago to the moment that we're recording. And he says, we also are getting a 30 day reprieve from these tariffs, like Mexico had announced earlier in the day. And he lays out what the deal is and it is a border deal. The Canadian prime minister says that we are going to push ahead with a plan to spend 1.3 billion Canadian dollars that's just shy of a billion US dollars, deploy more technology, more staff and personnel along that border. Now, it is worth mentioning that this plan had already been put in place weeks ago in response to the original Trump concerns.

So I think it'll be interesting to see whether it sold as a victory when it was a plan already announced. However, on the fentanyl front, Trudeau does announce several new measures. He says Canada will appoint a fentanyl czar. He says Canada will list fentanyl linked on other organized crime entities related to the drug trade as terrorist organizations, an important thing that we know Trump wants to do in the US as well. And he also says that Canada will throw 200 million Canadian dollars into renewed intelligence

efforts pertaining to the drug trade and cartels. Hmm. Are these feeling like meaningful concessions from Canada? I feel like given the fact that Canada had already started addressing President Trump's border concerns, the border piece of that concession doesn't feel huge to me. This is something that's already even budgeted for in Canada's economic planning. I think what is more meaningful is this renewed focus on fentanyl. Like I said earlier, Trudeau has admitted Canada has its own opioid crisis. And so I believe that that must have been a little easier for him to see eye to eye with President Trump

on even though the facts show that Canada is not an exporter of fentanyl to the United States, at least not at a worrying scale. Okay, this is the question I have for all of you. And in no particular order, was the juice worth the squeeze here? Was what Trump seemed to get from these two trading partners and neighbors to the North and South worth the market turmoil, the fear that it instilled in the governments of Mexico and in Canada as well as among corporate leaders in the United States? I don't know how to answer that question, but I'm hoping you do.

You know, really from Mexico's perspective, I think that there's the view that the relationship with the U.S. has been transactional for a very long time now, independent of which president is in power. There are good things about that relationship, and there are bad things about that relationship from Mexico's view. So I think that it just wasn't all that surprising for this crisis to erupt in the first place. Mexican authorities really kept a cool head throughout much of the process, which was very interesting. They

didn't take the bait, though they did respond assertively on certain points. But from Mexico's point of view, I don't think that the outcome of and I feel that in the last 24, 48 hours, so much trust has been shattered between the two countries that it will be really hard to build it back. Also let's remember a 30-day reprieve is not a permanent reprieve. This situation puts Canada, Canadians, the Canadian government on a footing of continued insecurity, which is exactly where President Trump seems to want them to be. But the loss of trust and the instability here in Canada, I feel, have made a big impact and will leave lasting scars beyond this immediate, you know, short-term reprieve.

Hmm. Sounds like the wounds will be deeper for Canada than for Mexico. And Ana, I want to know what you think from Trump's perspective and from those around him, was it worth all of the drama? I'm going to guess the answer is yes. Well, yeah, I would think from the president and his supporters' perspective, they'll say yes. I mean, obviously, the president is very attuned to the optics of his actions and how the public perceives them. But, you know, a lot of these concessions were already on the table, as my colleagues are saying, and were being repackaged. So, you know, I think his supporters will say this is the art of the deal. His critics will say this was a manufactured crisis.

It also raises some questions about, you know, what will he do with other countries going forward? I think the president will see this as putting other countries on notice that he is willing to deploy tariffs, he's ready to use them, and the president will see that as a good thing. But there are certainly critics who will say that kind of uncertainty really erodes the rest of the world's trust in the United States to be this responsible stakeholder, to be in charge of this global trading system that has certainty in it.

And then at the individual business level, it creates a lot of uncertainty too. If you as a business are watching out for the threat of tariffs, are you going to make an investment in a new factory or hire new workers? So it just creates a lot of uncertainty for people around him. Is it a stretch to say that America's foreign policy right now, given the way Trump is using tariffs, is basically about pain and what our trading partner's threshold for pain is? I think it's about America first and it's about, you know, using the power of the American

economy and deploying that as a weapon. You know, Trump knows that the American economy is extremely powerful and he likes to have that leverage to hold over other countries and he also just really likes tariffs. You know, he said that in many ways that he likes them as a tool. They're very powerful. They're very immediate. I think we could also get into a situation where if people start to question whether or not the president is ready to deploy tariffs, he might have to deploy them, you know, just to show everyone that he's willing to use them. It's not really a source of leverage if you're not willing to go through with it.

Right. It's not useful to him if it's an unshot gun sitting on a table. At some point, he may need to fire it. Well, I want to thank you three, Matina, Simone, and Ana. We really appreciate it. Thank you. Thank you, Michael. Thanks.

Thanks, Michael. Thanks. Thanks, Michael. Unlike his tariffs against Canada and Mexico, Trump's new 10% tariff on Chinese imports to the United States went into effect as planned this morning. On Monday, Trump said that those tariffs would not be his last against China, calling them, quote, an opening salvo. We'll be right back. Here's what else you need to know today. It now appears that despite a polarizing record and a history of unorthodox views, former Democratic Congresswoman Tulsi Gabbard has enough support to become the next director

of national intelligence. Gabbard's support for Russia, her meeting with Syria's former leader, and her refusal to call Edward Snowden a traitor have alarmed Senate Republicans. But on Monday, Gabbard won the support of moderate Republican Senator Susan Collins of Maine, who along with Republican Senator James Lankford of Oklahoma had previously expressed skepticism of Gabbard. With both senators now expected to back her, Gabbard's confirmation is all but assured. And, Secretary of State Marco Rubio has unveiled plans to restructure and potentially abolish the U.S. Agency for International Development, the lead U.S. agency for humanitarian assistance, which has become a target of Elon

Musk's sweeping campaign of cost-cutting. Over the past few days, the White House has suspended several of USAID's senior leaders, and the agency's workers were told not to come to the office on Monday. As of now, Rubio said that he was the agency's acting director. Musk's plans for the agency and his aggressive tactics across the federal government will be the subject of tomorrow's show. Today's episode was produced by Carlos Prieto and Rob Zipko. will be the subject of tomorrow's show.

Today's episode was produced by Carlos Prieto and Rob Zipko. It was edited by Maria Byrne and Lisa Chow, contains original music by Diane Wong and Pat McCusker, and was engineered by Alyssa Moxley. Our theme music is by Jim Runberg and Ben Landsberg of Wonder Lane. That's it for the Daily. I'm Michael Bobarro. See you tomorrow.