As Trump pauses tariffs on Mexico and Canada, China makes its move

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

The tariffs are not happening immediately — at least for Mexico and Canada. In what appeared to be another successful deal negotiated by U.S. President Donald Trump, the two countries agreed to ramp up their border protection, leading to a pause in tariffs.

Markets heaved a sigh of relief and made sharp turnarounds on the news. But persistent jitters about long-term uncertainty kept stocks from having a positive day. Trump’s comments on Sunday that he agreed with the U.S. Federal Reserve’s decision to keep interest rates unchanged could have also watered down investors’ expectations (however far-fetched) for lower rates.

Alphabet’s earnings, releasing later today, might attract the most attention, but in the current Trump-dominated context, it’d be interesting to see how Toyota Motor and Ford, which report earnings Wednesday, talk about — or around — how tariffs will affect their businesses.

(Some) Trump tariffs on hold
U.S. President Donald Trump on Monday agreed to pause tariffs on Canada for at least 30 days, Prime Minister Justin Trudeau said in a post on X. Trudeau’s announcement came hours after Mexico President Claudia Sheinbaum disclosed on X that Trump was holding off tariffs on its exports for one month. The delay comes after the two countries agreed to take steps toward preventing the trafficking of fentanyl into the U.S.

Return salvo from China
China responded to Trump’s 10% tariffs — which will go on top of existing ones — with a series of punitive measures. The country will impose additional tariffs of 15% on coal and liquified natural gas imports from the U.S. and 10% higher duties on crude oil, farm equipment and certain cars, starting Feb. 10, China’s Finance Ministry announced Tuesday. Beijing is also launching an antitrust probe into Google over allegations of monopoly practices.

U.S. markets fall but Asian stocks rise
All major U.S. indexes ended Monday in the red. The Dow Jones Industrial Average retreated 0.28%, paring losses of 1.5% earlier in the day, after news of the tariff pause broke. The S&P 500 slid 0.76% and the Nasdaq Composite slumped 1.2%. Asia-Pacific markets rose Tuesday. Japan’s Nikkei 225 added around 0.6% as shares of the country’s automakers, such as Honda and Toyota, advanced. However, Mitsubishi Motors shares plunged as much as 15.25% after the company cut its full-year net profit forecast.

U.S. sovereign wealth fund
Trump signed on Monday an executive order that outlines plans for a U.S. government-run sovereign wealth fund. While it aims to develop infrastructure such as airports and highways, it could also help the U.S. extend its influence in areas such as Panama and Greenland and even be used to buy TikTok.

‘Right thing to do’ — steady rates
In an apparent change of mind, Trump said the U.S. Federal Reserve holding interest rates between 4.25% and 4.5% at its January meeting “was the right thing to do.” The statement stood in stark contrast to one Trump delivered when speaking remotely to the World Economic Forum in Davos, Switzerland. In a Jan. 23 appearance, Trump said he would “demand that interest rates drop immediately.”

Investors pour into Palantir
Palantir shares surged as much as 24% in extended trading on Monday after the software company reported fourth-quarter earnings and revenue that beat estimates. Quarterly revenue rose 36% from a year earlier to $828 million. For the full year, sales increased 29%. Along with the fourth-quarter beat, Palantir offered better-than-expected guidance for the full year. CEO Alex Karp attributed much of the company’s growth to its use of artificial intelligence.

[PRO] A Trump tariff ‘template’?
Markets may have picked up after news broke that Trump was holding off tariffs for now, but they still closed the day lower. Analysts are similarly cautious about how Trump will deploy tariffs in the future — even if they are a “template” for deals, other countries could push back more forcefully and spark big moves in stocks in either direction.

Trump tariffs could create a new challenge for Chinese policymakers: a growth rate below 5%.

U.S. tariffs are likely to deal a significant blow to China’s already faltering economy, reinforcing calls for more forceful stimulus measures to bolster the country’s growth. The additional 10% tariffs on China, on top of duties that already exist, would reduce China’s real gross domestic product growth by 50 basis points this year, economists at Goldman Sachs said in a report Monday. As an external trade war looms, economists expect more fiscal spending to offset China’s deflationary pressures and boost consumer spending.

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