Tariffs on, tariffs off

A threatened 25 per cent levy on all Canadian and Mexican imports was called off at the last moment after talks on border enforcement, while a 10 per cent baseline tariff on Chinese goods went ahead on schedule. The White House now trades in a tiring, fast rhythm. It threatens tariffs over the weekend, wins some quick concessions and then announces a pause.

Forty-eight hours of brinkmanship

The sequence was compressed even by recent standards. The president signed the orders on Saturday, invoking emergency powers over fentanyl and migration rather than the slower trade statutes that require investigations and hearings. By Monday Mexico had agreed to send 10,000 National Guard troops to its northern border and Canada had promised new border measures, and both countries won a 30-day reprieve. China received no such pause and answered with its own duties on American coal, liquefied natural gas, crude oil and farm machinery, along with an antitrust investigation into Google.

The legal route matters as much as the rates. The orders rest on the International Emergency Economic Powers Act, a 1977 law designed for sanctions, which no previous president had used to impose tariffs. It lets the White House act within hours and without Congress, which is what makes the weekend deadline possible. It also means the whole structure is open to challenge in the courts, and that a tariff imposed this way can be lifted as quickly as it was announced. The orders also carried a detail that got less attention: Canadian energy was to be taxed at a lower 10 per cent, a concession to American refiners that depend on Alberta's heavy crude.

Threaten, then pause

The cycle is meant to give the president maximum leverage at the negotiating table without doing immediate, lasting harm to American supply chains. A credible threat of punishing duties pushes trading partners into fast bilateral concessions. The catch is that each reprieve is temporary. Supply-chain managers cannot draw up sourcing plans that run for several years when the rules may change by Monday.

The method has worked before, on its own terms. In 2019 the White House threatened escalating tariffs on all Mexican goods unless migration across the border fell, and dropped the threat within about ten days once Mexico agreed to deploy its new National Guard. That episode set the template now in use: a sweeping threat, a security concession and a suspension that leaves the weapon on the table. What it did not do was restore the confidence of companies deciding where to build factories.

Who writes the cheque

The mechanics are often misdescribed. A tariff is paid to American customs by the importer of record, usually an American company or the local arm of a foreign one, when the goods cross the border. That firm then decides how much to pass on to its customers and how much to squeeze out of its suppliers. Foreign exporters bear part of the burden only if they cut prices to keep the business, which Canadian and Mexican producers can hardly avoid, since about three-quarters of Canada's exports and a similar share of Mexico's go to the United States.

Retaliation spreads the cost to other Americans. Canada had readied duties on C$155 billion of American goods, much of it aimed at products from states that voted for the president. China's list is chosen with similar care. Farmers remember how this went in the first trade war, when Beijing cut purchases of soyabeans and Washington paid out $28 billion in aid across two years to make up the losses.

Warehouses pay for the whiplash

Logistics companies and carmakers bear much of the cost. Each alarm fills warehouses with safety stock bought ahead of a tariff, and each postponement leaves that stock sitting there, losing value. The inventory has to be financed, insured and stored, and the working capital tied up in it earns nothing. Carmakers are especially exposed because parts can cross the borders several times before a finished vehicle leaves an assembly line, so a duty levied at each crossing compounds rather than being paid once.

Currency markets showed where the risk sits. The Canadian dollar and the Mexican peso fell sharply when trading resumed after the weekend and recovered much of the loss as the pauses were announced, so importers who hedged at the lows now hold contracts struck at the wrong price. A 30-day window is too short to justify moving production and too long to ignore, which pushes firms towards the costliest option of all: holding extra stock and extra staff on both sides of the border.

The longer-term damage is to the North American trade agreement itself. The USMCA, which the same president signed in his first term, was supposed to give manufacturers a stable, tariff-free region to plan around, and its first joint review is scheduled for 2026. If a pact negotiated by this administration can be overridden by an emergency order on a Saturday, companies will treat any renegotiated version with the same suspicion, and the review becomes one more source of leverage rather than a settlement.

The case for the tactic

Defenders of the approach argue that it gets results faster than any trade negotiation, and the speed of the concessions from Ottawa and Mexico City supports them. The weakness is that the gains were small relative to the threat, since both governments offered measures that cost them little, while the uncertainty imposed on companies is large and persistent. China's willingness to retaliate at once also suggests the tactic works best against partners whose economies depend heavily on the American market.

The Chinese response was measured in its own way. Its duties do not take effect for several days, leaving room for a call between the two leaders, and the goods chosen are ones China can buy elsewhere. Beijing also announced export controls on several minor metals used in electronics and defence, signalling that it has levers other than tariffs.

Dates that matter

The next test comes when the 30-day pauses expire in early March, and the president has already said the European Union will face tariffs of its own. Any move to use the same emergency powers against Europe would confirm that threat-and-pause is policy rather than improvisation. Any talks between Washington and Beijing would show whether the 10 per cent duty is an opening bid or a floor.

Until one of those decisions settles the rules, companies will keep insuring against the worst case. Firms that trade across the northern and southern borders will carry higher costs for as long as this pattern lasts, spending on compliance staff and spare inventory that produce nothing, and the bill will show up in their margins by the spring whether or not a single tariff is collected.