The US dollar surged on Tuesday after President Donald Trump announced plans to impose tariffs of up to 25% on imports from Canada and Mexico starting February 1.
“We’re thinking in terms of 25% on Mexico and Canada, because they’re allowing vast numbers of people into the country,” Trump told reporters while seated at the Resolute Desk in the Oval Office. “I think we’ll do it February 1.”
The threat of tariffs reignited fears of escalating trade tensions among the United States, Canada, and Mexico.
The agreement governs a significant portion of North American trade but Trump’s proposed measures threaten to disrupt economic ties and destabilize supply chains.
Bloomberg’s dollar gauge climbed 0.7%, the largest gain since December 18.
In contrast, the Canadian dollar and Mexican peso both fell by as much as 1.4% against the US currency.
US Treasury yields also responded to the news, with the 10-year yield dropping 8 basis points to 4.54%.
Meanwhile, Asian stock markets, which initially opened higher, pared gains as investors digested the implications of Trump’s tariff threats.
Charu Chanana, chief investment strategist at Saxo Markets in Singapore, said “The tariff respite was short lived, as expected, with the latest headline signaling that tariffs have been delayed but not averted,” Chanana said.
The renewed tariff threats place Canada and Mexico in the spotlight with both nations expected to push back against the measures.
The Canadian dollar’s sharp decline reflects market concerns over the potential economic fallout.
Mexico and Canada account for significant portions of US trade, particularly in key sectors such as energy and automotive.
“With 25% now providing an anchor point, markets will no doubt start to worry whether China, the next target on Trump’s tariff agenda, will face an even higher rate,” said Jun Rong Yeap, market strategist at IG Asia Pte.
Despite the immediate focus on North American trade, Trump hinted at a broader trade strategy, suggesting the possibility of a universal tariff on all foreign imports.
“You’d put a universal tariff on anybody doing business in the United States because they’re coming in and they’re stealing our wealth,” Trump said, though he noted, “I’m not ready for that yet.”
The potential tariffs on Canada and Mexico could significantly impact the US-Mexico-Canada Agreement, which facilitates trade worth trillions of dollars annually. With the pact up for review in 2026, the escalating tensions could have lasting repercussions on regional trade dynamics.