After a weekend of would-be disastrous economic decisions involving blanket tariffs on America’s most important trade partners Canada and Mexico (as well as China) by President Trump and his administration, the looming tariff war has been postponed for another month.
On Monday morning President Claudia Sheinbaum posted on social media that her government reached an agreement with the White House to intensify border enforcement in exchange for delaying the tariffs. Prime Minister Trudeau reached a similar deal in the afternoon.
This is a critical moment because Mexico and Canada have been on the frontline of the new global (dis)order, making their response a potential case study for how economies that are smaller and somewhat dependent on America navigate pressure from the US in this new era of economic coercion.
After the 180 degrees reversal on the tariffs threat by Trump, what happens a month from now is quite predictable: probably nothing.
Why? Because, in the case of Mexico, whether these tariffs are ultimately imposed will depend on the situation at the border over the next month. The situation is similar for Canada, though to a lesser extent, given there was not a problem to begin with. The key metrics—border crossings and fentanyl seizures—will serve as indicators of “success”, at least to the extent that they matter to the Trump administration.
On border crossings, it’s important to note that the figures have been on the decline since their peak in 2022 and 2023, and they have continued decreasing since President Trump took office. However, this drop has little to do with any policy changes by the current or previous administrations. Instead, the American labor market is a significant driver of migration patterns. As the labor market cools due to the Federal Reserve’s inflation-fighting measures, we are naturally seeing fewer crossings.
This creates a scenario where President Trump can easily claim victory, even if both Canada and Mexico’s recently announced troops deployment to the border will play little role in the already preexisting trend. If declining crossings allow the president to avoid launching an economically disastrous trade war, so be it.
But despite this probable scenario, President Trump remains unpredictable. So, there is certainly a possibility, albeit small, that in a month from now he decides to reimpose tariffs regardless of the trends. If so, we should expect Canada and Mexico to retaliate.
And while I think a trade war is a catastrophic scenario, we already saw that both Canada and Mexico will also impose tariffs.
Both countries now have some time to think how should they address this, and a strategic response could include targeting certain industries that will create enough political pressure in the US, specifically through Congress, to avoid more escalation and an unnecessary economic catastrophe for the North American bloc. Understanding that all politics are local, I would not be surprised if Mexico joins Canada in potentially targeting American industries and products predominantly produced in Republican-leaning states, especially those with tight Senate and congressional races in 2026, like what the EU did in Trump 1.0.
What these countries do next is crucial, as it will establish a precedent for how smaller economies resist “trade bullying”, which seems to be the new norm. Smaller countries have an opportunity to respond intelligently, avoiding full-scale economic retaliation while applying pressure in the most effective way possible. They also have time to coordinate with other US trade partners to send a clear message: reckless tariff threats will be met with targeted responses.
After all, remember that when David and Goliath got into a fight, it was David—the smaller one of the two—who won.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise.
CGD is a nonpartisan, independent organization and does not take institutional positions.
