Trump Ties Mexico and Canada Tariffs to Fed Rate Cuts
MEXICO · TRADE
Key Facts
- —What happened President Trump threatened this week to cut off trade with countries that sell the US more than they buy.
- —How big He named Canada specifically, joining Mexico and the European Union as targets already named earlier.
- —What it means Trump linked the threat to the Federal Reserve, saying he will drop it only if the bank cuts interest rates.
- —The catch Trump is not proposing a new tariff — he wants a full trade halt instead, calling it better than tariffs.
- —Who it affects Mexican goods mostly cross into the US tariff-free under the USMCA, the North American free-trade pact.
- —What comes next Canada’s own retaliatory tariffs on US goods are due to start September 8 if talks stay stalled.
Trump says he would rather freeze trade completely than keep tariffs, to force the Fed into cutting interest rates.
President Trump has widened his threat to freeze trade with US partners. He now says Canada could face a total trade cutoff, not just new tariffs.
The threat is tied to the Federal Reserve, the US central bank. Trump is using it as pressure for a rate cut.
What Trump Actually Said
Trump posted on Truth Social on Friday, September 4. His message read: “Lower the rate or I’ll stop trading with countries with which we have a deficit.”
He also said a full trade freeze could be “better than tariffs.” Speaking to reporters, Trump said he saw “no obligation” to keep trading with anyone.
The post followed a strong August jobs report, showing 162,000 new positions. Trump argued the US should have “the LOWEST RATE of any country in the World.”
Trump was pressuring Kevin Warsh, the Fed’s new chairman. Warsh was sworn in this past May, after a contested Senate confirmation.
The US posted a record US$88.6 billion trade deficit in July. Mexico and Canada together made up close to 30 percent of that gap, Yahoo Finance reported.
Why Canada Got Named
Trump repeatedly floated banning all trade with Canada when he spoke with reporters, The South Shore Press reported. He did not give a tariff rate for that specific threat.
Earlier weekend coverage had focused mainly on Mexico and the European Union. By Friday, Canada had joined the list Trump named out loud.
Canada and the US are each other’s largest trading partners in many sectors. A total freeze would ripple through autos and energy trade on both sides of the border.
Canada’s Trade War Already Underway
US-Canada trade talks broke down on August 21, according to Al Jazeera. Trump had already placed a 50 percent tariff on about US$20 billion of Canadian goods, ABC News reported.
Canada’s Prime Minister Mark Carney says new tariffs on US$27.6 billion of American goods will follow. Money.ca and CNBC reported the retaliation begins September 8.
Carney has called the retaliation plan “dollar-for-dollar,” Al Jazeera reported. He said Washington “asked too much and they offered too little” in the failed talks.
Canada’s target list includes steel and dairy products. It also covers home appliances and electronics, Al Jazeera reported.
The two sides also clashed over car imports and Canada’s right to sign other trade deals, Al Jazeera reported. Carney separately accused Washington of shifting its justification for the tariffs, citing everything from drug trafficking to wildfire smoke.
Mexico’s Different Path
Mexico is not facing the same squeeze, at least for now. President Claudia Sheinbaum extended her country’s trade deadline after a call with Trump, Fox Business reported.
Most Mexican exports already cross the US border tariff-free under the USMCA. Sheinbaum has focused talks on trimming remaining tariffs on steel and aluminum, Mexico News Daily reported.
Mexico’s Economy Minister Marcelo Ebrard met with US Commerce Secretary Howard Lutnick on September 2. Their session covered steel and vehicle tariffs, Mexico News Daily reported.
Washington held a mandatory six-year review of the USMCA trade pact in July. It stopped short of confirming a long-term extension, leaving the deal under yearly review through 2036.
Neither Sheinbaum nor Carney had directly addressed the new Fed-linked threat as of Saturday. Their most recent public comments dealt with the broader tariff dispute, not this specific ultimatum.
How Markets Reacted
Mexico’s peso and stock market barely flinched at Trump’s trade threat. The peso traded near 16.92 to the US dollar this week, The Rio Times’ own market desk reported.
Mexico’s main stock index rose too this week, a gauge known as the IPC. Investors were reacting more to a separate Fed official’s comments favoring steady rates than to Trump’s threat.
A calmer market suggests investors see this mainly as a US political fight for now. That could change quickly if Trump follows through on tariffs against Canada or Mexico.
Why Tie Tariffs to the Fed
Trump argues low rates would help the US economy and shrink its trade gaps. Most economists reject that link, CNBC and The Philadelphia Inquirer both reported.
The Federal Reserve sets rates based on inflation and jobs, not trade policy. A strong jobs report normally argues against a rate cut, not for one.
Central banks like the Fed usually operate free from White House pressure. Economists warn that mixing trade threats with rate decisions could rattle investors instead of reassuring them.
The US Supreme Court already limited Trump’s tariff powers earlier this year. In February, it ruled his emergency powers could not justify certain earlier tariffs.
The Fed’s next rate decision is due later this month. Markets will be watching whether Trump repeats the trade threat if Warsh does not deliver a cut.
More: Mexico news in English, every day from The Rio Times.
Frequently Asked Questions
What did Trump actually say?
On September 4, Trump posted on Truth Social: “Lower the rate or I’ll stop trading with countries with which we have a deficit.” He said a full trade freeze could be “better than tariffs.”
Is this a new tariff on Canada and Mexico?
No specific tariff rate has been announced for this threat. Trump is instead threatening to stop trade completely with countries that sell the US more than they buy.
Why does Trump want the Federal Reserve to cut rates?
Trump argues lower rates would boost the US economy. The Federal Reserve, the country’s central bank, sets rates based on inflation and jobs, not trade policy.
How is Mexico’s situation different from Canada’s?
Mexico is still negotiating and has avoided a full tariff war. Canada’s talks with Washington already broke down, leaving tariffs on both sides.
Could Trump legally cut off all trade with a country?
That power is untested and legally uncertain. The Supreme Court already ruled in February that a key emergency law does not justify some of his earlier tariffs.
Sources: CNBC, CNN Business, Yahoo Finance, Mediaite, The South Shore Press, The Philadelphia Inquirer, Al Jazeera, ABC News, Fox Business, Mexico News Daily, Money.ca, The Rio Times, White & Case LLP, WilmerHale, Holland & Knight.
This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error
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