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Trump walks back Mexico tariffs, promises relief for 'patriot farmers'

Javier E. David
Editor focused on markets and the economy

President Donald Trump announced on Friday that the United States would “indefinitely” suspend a plan to impose tariffs on Mexican goods in exchange for tougher border controls, momentarily removing a source of uncertainty that have roiled global markets.

After days of tense negotiations that went down to the wire, Trump posted on Twitter that the two sides had struck an accord that would remove the threat of tariffs. Otherwise, import duties of 5% on Mexican goods would have taken effect on Monday, an added burden for businesses and consumers already grappling with 25% tariffs on Chinese goods.

MEXICO CITY, MEXICO - JUNE 07: Export freight containers with Mexican produced goods are seen ready to be shipped to the US in the Pantaco customs complex on June 7, 2019 in Mexico City, Mexico. President Donald Trump's threatened to impose a 5-percent tariff on all imports to the United States if Mexico does not do more to restrict migrants from Central America from coming to the U.S. (Photo by Hector Vivas/Getty Images)

According to Trump, Mexico’s government agreed to strengthen border security efforts to stem the unchecked flow of migrants from Central America and Mexico into the U.S. He added that full details would be announced shortly.

Relief for ‘patriot farmers’

Last week, Trump shocked markets by threatening to slap 5% surcharges on Mexican imports beginning June 10, as part of a demand that the country do more to contain a surge of migrants streaming across the border.

His demands to Mexico upended efforts to shepherd a new North American trade agreement across the finish line, which in the process sharply divided Congressional Republicans.

Business and trade groups normally sympathetic to the Trump administration’s policies blistered the president’s move to open a new front in a global trade war, warning that the costs would have eventually trickled down to consumers.

American farmers, meanwhile, have borne the brunt of the Trump administration’s protectionist measures, with many reporting oversupplies and sharply lower revenue. On Saturday, the president said on Twitter that Mexico also agreed to buy “large quantities” of agriculture from “patriot” U.S. farmers.

The battle with Mexico came as the Trump administration continues to try and wrest trade concessions from China — another source of economic anxiety that has ricocheted across financial markets and undermined growth prospects.

May’s weaker-than-expected U.S. payrolls data, combined with the double-barreled threat of a U.S. trade war with its two largest trading partners, have weighed on stocks and sent bond yields plunging.

Economists at JPMorgan Chase estimate that the trade war with China has already cost U.S. households $600 a year, and could have surged to $1,550 if Trump makes good on his threat to slap additional tariffs on $300 billion in Chinese imports.

Yet U.S. stocks ended in the black on Friday, after the disappointing jobs report amplified calls for the Federal Reserve to pivot toward easier monetary policy. The suspension of Mexican tariffs will likely be welcomed by investors when stock futures open for trading on Sunday evening.

“We think investors are starting to exhaust themselves following the president's tweets moving market prices up and down,” wrote Chris Rupkey, an economist with MUFG Union Bank.

“The US trade war with world has taken a step back tonight from the brink and this can only be good news for U.S. economy and markets,” he added.

The S&P 500 (^GSPC) rose 1.05%, or 29.83 points, as of market close. The Dow (^DJI) rose 1.02%, or 263.48 points, retreating slightly after earlier in the session crossing above 26,000 for the first time since May 10. The Nasdaq (^IXIC) advanced 1.66%, or 126.55 points. The S&P 500 and Dow each rose more than 4% for the week, while the Nasdaq rose 3.9%.

—Yahoo Finance’s Emily McCormick, Sibile Marcellus and Aarthi Swaminathan contributed to this report.

Javier is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek

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