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Mark Blinch/Reuters

The long-suppressed worry has come raging back.

Concern Donald Trump would move to enact trade barriers with his NAFTA counterparts returned to the fore Tuesday after the U.S. slapped tariffs of up to 24 per cent on imported softwood lumber from Canada. That sent the loonie and Mexico's peso tumbling as traders took the move as a signal that the U.S. administration could pursue protectionist policies.

The sell-off echoed the reaction in both currencies immediately after Trump's surprise election victory, when they sank on speculation he'd pursue trade barriers as part of campaign pledges to put American workers first. The concern had largely abated this year in Mexico as officials spoke favorably about reaching a mutually beneficial reworking of Nafta. The loonie wasn't so lucky, posting the worst performance among major currencies in 2017 as Trump grumbled about unfair competition from Canadian wood and dairy.

The lumber tariff was an easy target for Mr. Trump given the long-running dispute between the two nations on the issue, according to Lewis Jones, who oversees $2.3-billion in emerging-market assets at NN Investment Partners in New York and is overweight Mexico.

"Protectionist tariffs weren't in the price for the Canadian dollar and the Mexican peso had priced it out," said Bipan Rai, senior foreign-exchange and macro strategist at the Canadian Imperial Bank of Commerce in Toronto. "Ahead of the Nafta negotiations, markets have become somewhat more sensitive that talks won't be as smooth as expected previously."

The peso has surged 9.6 per cent this year to lead emerging-market gains. Meanwhile, Canada's dollar has lost 1.2 per cent as trade tensions mounted and oil fell below $50 a barrel.

The peso fell 1 per cent to 18.9250 per dollar as of 12:17 p.m. in New York, the weakest in nearly a month. Canada's dollar declined 0.9 per cent to 1.3616 per greenback, which would be the lowest closing level since February 2016.

"The fear is understandable," said Edwin Gutierrez, the head of emerging market sovereign debt in London at Aberdeen Asset Management, which oversaw $374-billion at the end of 2016. "We have the most unpredictable president in history who is desperate for victories."