A major U-turn in the tariff drama unfolded Monday as the United States and Mexico agreed to pause the planned trade levies for one month.

Both nations pledged to tackle key security concerns, including drug trafficking and arms smuggling, while reopening trade negotiations.

Mexican President Claudia Sheinbaum confirmed the agreement via social media platform X at 10:21 a.m. ET.

She indicated the deployment of 10,000 National Guard troops to Mexico's northern border to combat fentanyl trafficking and a U.S. pledge to curb the flow of high-powered weapons into Mexico.

Sheibaum said: “Our teams will begin working today on two fronts: security and trade.”

Twenty minutes later, President Donald Trump announced the deal on Truth Social, calling his conversation with Sheinbaum “very friendly.”

He stressed Mexico's commitment to border security and said high-level negotiations will be led by Secretary of State Marco Rubio, Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick. Trump also indicated his involvement in talks, expressing optimism for a broader trade agreement.

Read also: US Manufacturing Confidence Tops Forecasts, Yet Price Pressures Intensify, ‘Could Become A Concern,’ Economist Says

Markets Rebound As Tariff Pause Fuels Optimism

Investor sentiment improved sharply following the announcement.

The S&P 500 – as tracked by the SPDR S&P 500 ETF Trust SPY – trimmed losses to 0.6%, rebounding from steeper declines earlier in the session as traders anticipated a potential de-escalation in trade tensions.

The Mexican peso staged a dramatic turnaround, surging 1% after initially falling nearly 2% overnight.

The USD/MXN exchange rate dropped to 20.42, down from a session high of 21.32, reflecting renewed confidence in Mexico's economic outlook.

The iShares MSCI Mexico ETF EWW rallied to 3%, reversing earlier session losses of up to 2.5%.

All eyes now turn to Trump’s scheduled call with Canadian Prime Minister Justin Trudeau at 3 p.m. ET, as markets speculate whether similar tariff relief could be extended to Canada.

Read Next:

• Ford, General Motors Shares Are Sliding Monday: What’s Going On?

Photo via Shutterstock.