U.S. stocks slashed early losses by the end of the day after President Donald Trump agreed to delay his 25% tariff on Mexican goods for a month.

After the markets closed, Trump also agreed to delay Canada's tariffs for at least 30 days, Canadian Prime Minister Justin Trudeau tweeted. In exchange, Canada would target the flow of fentanyl across the border into the United States.

The broad S&P 500 index ended down 0.76%, or 45.96 points, to 5,994.57; the blue-chip Dow dipped 0.28%, or 122.75 points, to 44,421.91; and the tech-heavy Nasdaq shed 1.2%, or 235.49 points, to 19,391.96. The benchmark 10-year Treasury yield fell to 4.535%.

At the open, stocks tumbled, rattled by Trump's unleashing 25% tariffs on Canada, except for oil at only 10%, and a 10% levy on goods from Mexico and China, starting Tuesday.

Investors were worried a trade war would erupt. Mexican President Claudia Sheinbaum vowed to retaliate only to agree to provide 10,000 Mexican soldiers to the border in exchange for a one-month delay to the tariff, Trump said in a post.

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The pact bolstered views that Trump's tough tariff talk is simply a negotiating tool.

Trudeau initially countered with a 25% tariff on around $107 billion worth of American-made products. Hours after Mexico's deal, he announced an at least 30-day pause.

China will challenge Trump's tariffs at the World Trade Organization, which some analysts noted will take a while. The Wall Street Journal reported that Beijing was open to talks, too.

What does Trump win from imposing tariffs?

Trump said in a social media post the decision was made to “protect” Americans “because of the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl.” Trump said Europe would be next.

"The pretext of the tariffs was fentanyl, but in interviews, President Trump cited trade deficits," said Brian Gardner, Stifel chief Washington policy strategist. "This suggests that the administration is looking for a political deal.  It could be on trade, it could be on fentanyl, but it seems like the administration wants to be able to claim some tangible benefits."

Trump's first term also "suggest(s) that he will ultimately agree to a deal for which he can claim a political victory even if there is no significant change in policy – a cosmetic win," Gardner said.

So far, it seems has has won some concessions from Canada and Mexico for now.

How would the tariffs affect the economy?

If the tariffs go into full effect, many economists say the global economy will slow.

“This development came sooner than we anticipated in our baseline forecast and will lead us to downgrade our 2025 global forecast,” saidRyan Sweet, chief U.S. economist at Oxford Economics in a note.

However, Sweet expects the announced tariffs won’t fully remain in place for an extended period. “Exemptions will be made, including for building materials and transportation equipment. Still, the tariffs will shave 0.7 percentage point off U.S. (economic) growth this year, and while a recession will be avoided in the U.S., Canada and Mexico will be hit even harder," he said.

Tariffs are also expected to bring inflation, but how much "will depend on whether and how long higher tariffs persist, which retaliatory and counter-retaliatory measures are put in place, the effectiveness of tariff collections, feedback effects from global and financial conditions, and other considerations," said  Michael Feroli, JP Morgan chief U.S. economist.

How could tariffs affect interest rates?

With expectations for tariffs, even short lived, to increase inflation, economists said that'll keep Federal Reserve interest rate cuts on hold.

"The resulting surge in U.S. inflation from these tariffs and other future measures is going to come even faster and be larger than we initially expected," said Paul Ashworth, chief North America economist at Capital Economics. "Under those circumstances, the window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut."

Gardner argues though Trump's "administration understands the political risk of higher prices," which makes him think Trump is really looking for a deal.

But Feroli said damage could already be done. "Even if tariffs are called off tomorrow, the increase in policy uncertainty will be hard to put back in the bottle," he said. "For the Fed, the weekend’s developments will likely reinforce their inclination to sit on the sidelines and to remain below the radar as much as possible."

What do tariffs mean for stocks?

Stocks around the world fell on the news of tariffs, but there may be reason to think U.S. equities will outperform.

"All else equal, the tariffs are bad for U.S. equities but, in general, worse for those elsewhere," said Thomas Matthews, Capital Economics' head of markets for Asia Pacific.

Stocks are volatile, with sizeable down swings, but he said the moves still suggest to him "investors might be holding out hope for a reprieve...It may be that he decides he has gained enough concessions to declare victory."

Trump also has "touted the stock market as a barometer of his performance," Gardner notes. So, it's possible any deep or prolonged stock market declines could quickly switch his views and policies, he said.

Matthews remained cautious, warning "the flipside is that if the tariffs stick around, let alone escalate, this morning’s market moves may be just the start of greater volatility."

Stock news

In the latest round of tariffs, the auto sector is likely to get hit hard because most automakers use Mexico and Canada to manufacture vehicles and parts for the U.S. market, analysts said. General Motors shares closed down 3.15% and Ford lost 1.74%. Aptiv, an auto parts supplier, declined 2.79%, and engine maker Cummins eased 2.26%.

Constellation Brands, which distributes imported Mexican beer to the United States, fell 3.53%.

Apple shares sank 3.39% because the iPhone maker assembles most of its products in China.

Farmers will likely get hit because Mexico is the top importer of American corn and pork, and Canada imports billions of dollars in corn, beef, pork and ethanol from the U.S.

Other corporate news included:

• Tyson Foods stock rose 2.21% after the company's earnings in the first three months of its fiscal year topped analysts' expectations, led by growth in the beef category.
• After the market closed, Palantir Technologies shares soared more than 15%. The software company topped analysts' earnings expectations in the last three months of the year and issued a bullish outlook.
• Google-parent Alphabet willl report earnings on Tuesday. The results could swing focus back to artificial intelligence spending, which roiled the markets last week after DeepSeek built a competitive AI model on a shoestring budget.

Bitcoin

Bitcoin slumped early as investors sold risky assets amid a potential tariff war but followed stocks higher later in the day as trade war worries eased.

The crytpocurrency fell below the key psychological level of $100,000 but made its way back into the green. It was last up 3.59% at $101,184.50.

(This story was updated with new information.)

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and  subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.