What will tariffs do to inflation?published at 17:17 Greenwich Mean Time 3 February

17:17 GMT 3 February

Faarea Masud
Business reporter

As we just mentioned, analysts argue that tariffs will increase prices faced by consumers, because firms will try to pass on the extra costs they are facing.

If this happens then it will push up the rate of inflation - which measures the pace of price rises. If the rate of inflation rises then central banks are less likely to cut interest rates, keeping the price of borrowing higher.

However, there is no guarantee that the full effect of the tariff will be passed on to prices in the shops. Some firms might decide to absorb some of the costs, or foreign exporters might decide to cut their prices to protect sales.

Last week, the US central bank - the Federal Reserve - kept interest rates unchanged, saying it was "waiting to see what policies are enacted" by Donald Trump.

Paul Ashworth, chief North America economist at Capital Economics, says the expected surge in inflation from the tariffs means the opportunity for the Federal Reserve to cut rates over the next 12-18 months has “just slammed shut”.

What are tariffs and how do they work?published at 17:14 Greenwich Mean Time 3 February

17:14 GMT 3 February

By Ben Chu, BBC Verify

A tariff is a tax on goods coming into a country.

So a car imported to the US with a value of $50,000 (£38,000) subject to a 25% tariff would face a $12,500 (£10,000) charge.

The charge is paid by the domestic company that imports the goods, not the foreign company that sends them.

So, in that sense, Trump's tariffs will be a straightforward tax paid by US firms to the US government.

But studies of the impact of the new tariffs that Trump imposed in his first term of office suggest most of the cost was ultimately borne by US consumers.

Read more on whether or not Trump’s tariffs will hurt US consumers.

We've had a flurry of updates come through in the last couple of hours, including one on the markets - which, as we've just reported, are now cooling in response to the news that Mexico and the US have reached a deal on trade tariffs.

But now is as good a time as any to pick over what this all means.

Our team of experts will be answering some of the questions people have around this complicated topic.

Some of these queries might have already been picked up by our colleagues on the BBC News channel, who carried out their own Q&A on all things tariffs a short while ago. We'll be doing our best to answer these questions here over the next little while - so stick with us.

João da Silva, Nick Edser & Natalie Sherman
Business reporters

US shares have halted their slide, after the president of Mexico said she had reached a deal with US President Donald Trump to suspend tariffs on the country's goods.

The announcement, which was confirmed by Trump, arrested a global sell-off in financial markets, sparked by his decision to move forward with tariffs on goods from Canada, Mexico and China, and his pledge that tariffs on the EU would "definitely happen".

After opening down more than 1%, the three major indexes in the US regained some ground, with the Dow Jones Industrial Average off about 0.3%.

Investors are bracing for a turbulent period that could hit the earnings of major companies and dent global growth.

The US dollar strengthened on the currency markets amid the uncertainty, rising to a record high against China's yuan, while the Canadian dollar plunged to its lowest level since 2003.

Earlier, concerns about the tariffs had hit shares in Asia and Europe. The German and French stock markets fell more than 1.5%, with shares in carmakers among the worst hit, while in London, the FTSE 100 dropped about 1.4%.

• Read more about the impact of Trump's trade decisions in our news story

Image source, Reuters

If you're just joining us, here's everything you need to know about Trump's plans to impose tariffs on key trade partners, which are set to go into effect on Tuesday:

• In the last hour, President Trump confirmed an "immediate pause" on anticipated tariffs of 25% on Mexican goods. President Claudia Sheinbaum says the delay - which will last a month - follows on from a "good conversation" she had with her American counterpart
• Trudeau and Trump are set to speak again later today, according to the US president. Trump says he has spoken to the Canadian prime minister and plans to do so again at 15:00 local time (20:00 GMT). This comes after Trudeau announced his own retaliatory tariffs on US goods on Saturday
• US markets have fallen as Wall Street prepares for tariffs. Stock markets also fell in Asian and European markets shortly after opening
• EU members respond to Trump's tariff threats. It follows from Trump's assertion that the US could impose tariffs on the 27-member bloc "pretty soon". Poland’s Prime Minister Donald Tusk has said the EU must do "everything to avoid this totally unnecessary and stupid tariff war"
• The leader of Ontario - Canada's most populous province - says it will ban US firms from government contracts and it will be "going one step further" in retaliatory tariffs, by "ripping up" the province's contract with Elon Musk's satellite company Starlink

Bernd Debusmann Jr
Reporting from the White House

Rounding out the end of her daily news conference, President Sheinbaum is now asked about how the US and Mexican governments will measure results.

She says that both her and President Trump will be involved in evaluating whether the steps promised today were successful over the course of the first month.

"I think we can come to [an] agreement, that respects sovereignty, that will be very important," she adds. "It's happened before, but we can now reach new successes in terms of coordination and cooperation."

Among the most important elements, she adds, will be whether any disruption to the flow of weapons brings down violence in Mexico, and whether drug trafficking can be disrupted.

"The method still needs to be defined, but I have confidence that we will come to many agreements," she says.

Sheinbaum says that "physical meetings" between US and Mexican delegations will likely also be necessary. Earlier, she had said that while there are no plans for a meeting between her and Trump so far, they will be in contact with one another.

Asked about the deployment of 10,000 Mexican National Guard troops to the border, Sheinbaum says she will be presented with a military operational plan later today so that it can begin being implemented "immediately".

Bernd Debusmann Jr
Reporting from the White House

Asked now about the ongoing uncertainty about the potential of future tariffs, Sheinbaum says that the "pause" has brought about "certainty" and that she is confident that subsequent meetings will lead to longer-term results.

"I'm sure that the high-level meetings between the Mexican and US governments about security, migration, and commerce...will help very much," she says.

"It's good that we begin getting to work in these areas."

"We have this month to work and convince ourselves, among everyone, that this is the best path," Sheinbaum adds. "High-level dialogue will help. It's good news that [the tariffs] are paused.

She says, however, that they've "saved" their "plan B" - in case tariffs do eventually happen - "for now".

Bernd Debusmann Jr
Reporting from the White House

Let's return now to Mexican President Sheinbaum's news conference, where she has just explained how the looming prospect of tariffs brought together a wide cross-section of Mexican society, including state governors, chambers of commerce, lawmakers and industry.

But some of the support, she notes, also came from US companies.

"Many of them came out to say that this is not suitable," she says. "All of that helped bring along the agreement that we came to today."

Although she did not specify them by name, Sheinbaum says that a small minority of Mexicans appeared to have celebrated the impending tariffs.

"Imagine that," she says. "One person, in a column in Reforma newspaper, said that Mexico needs to change its economic model and relationship to the United States....but no. That's not necessary."

Donald Trump has now just confirmed the "immediate pause" in anticipated tariffs on goods from Mexico via a post on Truth Social.

"We [...] agreed to immediately pause the anticipated tariffs for a one month period during which we will have negotiations headed by Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick, and high-level Representatives of Mexico," he writes.

We'll have more on this with you shortly.

Bernd Debusmann Jr
Reporting from the White House

Image source, YouTube/Excelsior

Mexican President Claudia Sheinbaum is currently giving her morning news conference, in which she is detailing the phone call with Trump that appears to have led to today's agreement.

The Mexican government clearly sees this as a victory. Sheinbaum's appearance began with applause after she asks those in attendance whether they'd seen her social media post on X.

According to Sheinbaum, the conversation with Trump was "long", lasting perhaps 30 or 45 minutes.

"We spoke about our common interests. We said that we'd been working together about migration, which worked well," she says. "We [also] spoke about the interest that he has, and we have, in reducing the flow of fentanyl and other drugs."

After discussing fentanyl and the deployment of additional Mexican National Guard troops to the border, Sheinbaum says she "explained the seriousness of high-powered weapons arriving to Mexico from the US" and into the hands of criminal groups.

"It gives them firepower," she adds. "We asked that the US also help our country by helping stop this arms trafficking...he agreed."

Lastly, Sheinbaum says that Trump "insisted" on discussing what he termed a trade deficit between the two countries.

"I told him it's not really a deficit...we're commercial partners," she adds. "That's the best way to keep competing with China and other regions of the world."

Bernd Debusmann Jr
Reporting from the White House

Part of the temporary deal just announced by Mexican President Claudia Sheinbaum is that the US will work to stop the flow of firearms south into Mexico - a long-running issue that has been a focus for the Mexican government.

Mexican authorities allege that tens of thousands of US-manufactured guns are trafficked south across the border each year, providing drug cartels with easy access to massive arsenals used to fight each other and the Mexican government.

Some estimates put the total at over half a million weapons each year.

In Mexico, it's extremely difficult to purchase a gun.

Mexico is home to exactly one gun shop, a fortress-like structure in a Mexico City military complex that requires buyers to provide mountains of paperwork and submit to exhaustive background checks that can take months.

Extremely restrictive gun laws require guns to be registered with the federal government and limits their type and calibre.

But north of the border, getting a gun is far easier. Mexican officials believe that a large portion of southern-bound weapons are bought legally by 'straw buyers', who then unlawfully pass them on to criminals.

In other cases, guns are bought "off paper" from private vendors at gun shows in states such as Texas or Arizona, circumventing background checks.

In 2021, Mexico filed a $10bn lawsuit against US gun manufacturers over the flow.

• Read more about Mexico's fight to sue US gun manufacturers

We're still expecting to hear from Mexican President Claudia Sheinbaum at a news conference shortly. But we can now bring you a breaking news development which she has just shared on X in the last few minutes.

Sheinbaum says that the US will delay imposing 25% tariffs on goods from Mexico for a month following a "good conversation" with Trump.

It comes after the two leaders came to an agreement, she says, including that Mexico will reinforce the border with 10,000 National Guard troops who will be immediately deployed.

They will be tasked with preventing drug trafficking into the US - with a particular focus on fentanyl, which had been one of Trump's cited concerns.

Sheinbaum adds that the US has also committed to work on preventing trafficking of high-powered weapons into Mexico.

Image source, Reuters

As we wait to hear from the Mexico president - who is due to speak shortly - President Trump has just said that he has spoken with his Canadian counterpart and plans to phone him again soon.

"Just spoke to Justin Trudeau. Will be speaking to him again at 3:00 P.M," Trump wrote in a post on Truth Social.

In the same post, the US president went on to accuse Canada of not allowing "U.S. Banks to open or do business there".

"Many such things, but it’s also a DRUG WAR, and hundreds of thousands of people have died in the U.S. from drugs pouring through the Borders of Mexico and Canada," the post reads.

As a reminder, Trudeau said on Saturday when he announced his own retaliatory tariffs on US goods that he had not spoken to Trump since he had taken office on 20 January.

Trump's tariffs on Canada, Mexico and China - which he says are due to a range of reasons including border security, inflows of drugs and trade deficits - are set to begin on Tuesday.

Bernd Debusmann Jr
Reporting from the White House

Mexican President Claudia Sheinbaum is scheduled to deliver her morning news conference in Mexico City shortly - a session that is sure to be dominated by Mexico's response to Trump's tariffs.

We don't have many details yet, but Sheinbaum has already announced retaliatory tariffs will be introduced, and said over the weekend that she had instructed Mexico's economy minister, Marcelo Ebrard, to implement a "plan B" that includes "tariff and non-tariff measures".

On X, Sheinbaum also expressed anger at the Trump administration's claims that the Mexican government is in an "unholy alliance" with drug trafficking organisations.

"We categorically reject the slander made by the White House against the Mexican government about alliances with criminal organisations," she wrote. "If there is such an alliance anywhere, it is in the US gun shops that sell high-powered weapons to these criminal groups."

Stay with us for updates from the news conference.

Natalie Sherman
New York business reporter

All three major stock exchanges in the US are lower, as they open for the first official trading since Trump issued his orders raising tariffs on imports from Canada, Mexico and China.

A few minutes into trading and the Dow Jones Industrial Average is down about 1%, the S&P 500 off more than 1.5%, and the Nasdaq down roughly 2% from Friday.

“All Trump did was follow through on exactly what he’s been saying he’s going to do since November,” strategists at Deutsche Bank wrote of the global sell-off.

“The market has refused to take that threat seriously though, completely under-pricing the risks," the strategists said, reflecting on the last few months.

"So, this leaves the weekend news as a severe shock.”

Wall Street's main indexes dropped when they opened a few minutes ago.

The Dow Jones Industrial Average has fallen 276.5 points (0.62%), the S&P 500 fell 70.9 (1.17%) and the Nasdaq dropped 412.1 points (2.10%).

As a reminder, the 25% import tax on goods from Canada and Mexico and 10% on goods from China comes into effect on Tuesday morning.

Vishala Sri-Pathma
Business reporter

US share price indexes like the Dow Jones, the Nasdaq and the tech-heavy S&P 500 are expected to fall when they open at 09:30 EST (14:30 GMT), as investors take in what the impact of new tariffs might be to companies in North America.

The US dollar surged on the news of tariffs, driven by lower growth expectations for the global economy.

According to economists, tariffs are likely to lead to a general slowdown in global trade volumes and are also expected to push up prices.

This will have a knock-on effect on central banks when deciding on interest rates, possibly slowing down the pace of rate cuts as they attempt to grapple with a potential spike in inflation.

In pre-market trading, US automakers like General Motors and Ford - with big North American supply chains - are experiencing the biggest falls in share price value.

Stay tuned as we bring you the latest from the US markets in the next few minutes.

Image source, Reuters

After Donald Trump told Canada he would be imposing 25% tariffs on Canadian imports, Prime Minister Justin Trudeau hit back with tariffs of his own.

Now, the leader of Ontario - Canada's most populous province, which makes up about 38% of the country's GDP - has also set out some consequences of Trump's actions for US companies operating in the province.

Premier Doug Ford says that American companies will be immediately banned from provincial contracts until US tariffs are removed.

"US based businesses will now lose out on tens of billions of dollars in new revenues," he says in a social media post. "They only have President Trump to blame."

He adds that Ontario will be "going one step further" by "ripping up" the province's contract with Elon Musk's satellite company Starlink, a firm that provides fast internet around the world.

Musk is one of Trump's closest allies, and as our economics editor explains, this decision might have been made in the hope of forcing Trump's aides to confront the president over the cost of his policies.

• Why is this important? The Ontario government partnered with Starlink to launch a programme last November that would offer high-speed satellite internet access to 15,000 eligible unserved and underserved homes and businesses

Thomas Copeland
BBC News

Image source, Monika Morelli

Monika Morelli, 39, from Montreal, Canada, has cancelled all her subscriptions to US companies, including Amazon and Netflix, as well as her planned holiday to New Orleans.

She says Trump's repeated threats to Canada are "nothing short of bullying".

"I've never felt more Canadian in my entire life. I live in Quebec and for French Canadians to feel so Canadian is not something I've felt in my lifetime," she tells the BBC, adding that when Trump confirmed the tariffs "something snapped".

Morelli says jokes about Canada becoming a US state are "no longer funny" and that "Trump is threatening our sovereignty".

"I mean, do we go get our gun licences? Do we need to be ready in case we're called to fight?" she says.

"There is something that has been irrevocably broken now, after centuries of the US and Canada being allies."

Image source, Reuters

We shared some reactions earlier from EU officials about Trump's tariff threat. Now, we’ve got more comments from EU leaders.

French President Emmanuel Macron says that if the EU’s commercial interests were attacked, it would have to "make itself respected and thus react".

He also said recent statements from the US are pushing Europe to become stronger and more united.

Poland’s Prime Minister Donald Tusk says the EU must do "everything to avoid this totally unnecessary and stupid tariff war," stressing the importance of European unity moving forward.

"This is perhaps the first test of this type for the solidarity and unity of the European Union in a very unusual situation, when we are dealing with such a series of surprises from our closest ally," he says.

Image source, Reuters