Canada-Mexico Trade War Already Over as Gold Hits Record Highs

Just like that, Trump’s trade war with Canada and Mexico has already ended (or at least been “paused”) before it even began. With gold hitting record new highs and the second Trump administration not even a month old, you can bet it won’t be the first “Trump Shock” to send waves through markets and media.

Trump ignited global trade tensions by announcing hefty tariffs on imports from Canada, Mexico, and China. Specifically, a 25% tariff was levied on goods from Canada and Mexico, while a 10% tariff targeted Chinese imports. Energy resources from Canada faced a slightly lower tariff of 10%. Major European indices, such as the FTSE 100 and the Stoxx 600, experienced declines of 1.04% and 0.9%, respectively. In the United States, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all puked, reflecting investor apprehension about the potential economic repercussions of a protracted trade conflict caused by tariffs with established, longtime allies and trading partners affecting over $1 trillion worth of exported goods.

NASDAQ 5-Day

In response to the U.S. tariffs, Canada and Mexico announced their intentions to implement retaliatory measures. China also signaled plans to challenge U.S. actions at the World Trade Organization and hinted at unspecified countermeasures. These developments led to concerns about a potential global economic slowdown, resurgent inflation, and disruptions to international supply chains.

But, while tariffs on China are proceeding, the protracted trade conflict that everyone expected with Canada and Mexico is off the table (for now). The Trump tariffs, justified by the administration as a means of addressing issues related to illegal immigration and the influx of illicit drugs into the United States, are on pause. Both Canada and Mexico have announced concessions to the tune of increased border security and other measures.

And that’s a good thing. Aside from impeding companies that were planning on investing in their growth, hiring new workers, or starting new projects, tariffs add fuel to inflation by incentivizing higher prices for consumers. If it costs a Canadian company 10% more to get their product into the US, they’re going to raise their prices to make up for it instead of taking the hit. It’s a tax on consumers, pushing up inflationary pressure at a time when it still is far from under control.

The constant threat of tariffs introduces a lot of uncertainty, not just into financial markets, but for companies that may be directly impacted by the tariffs. This may delay capital investment and cause projects or hiring to be put on hold until there is clarity on this issue.

— Peter Schiff (@PeterSchiff) February 3, 2025

Markets were rattled and gold shot up to new all-time highs. The president’s Trickster Energy adds a complex and exciting human drama to market watching, and gold loves uncertainty.  Amidst escalating trade tensions and the bombastic, seemingly capricious Trumpian approach to international relations, gold emerges as a preferred safe-haven asset for investors seeking stability. The imposition of tariffs raises production costs, which get passed onto consumers and fuel already red-hot inflationary pressures. Additionally, the potential for a slowdown in global trade and economic activity increases the appeal of gold as a store of value. 

Gold vs USD 1-Month

From the gold price surpassing the $2,800 per ounce mark for the first time, driven by fears of a deepening trade war and its potential economic fallout, to Trump’s call to fire up the money printer, gold goes up when no one knows what to expect — or when they expect the worst. Now, $3,000-dollar gold is just a small hop away. There will be more threats, and hopefully a full-blown trade war can be avoided. 

But when Trump shakes his stick, playing a game of economic chicken where multiple nations threaten to collide, gold is how you get out of the way.