The United States has imposed a series of tariffs on Mexico, Canada, and China, escalating fears of a global trade war. The tariffs, set to take effect on Tuesday, include a 25% levy on imports from Canada and Mexico, with Canadian energy facing a slightly lower tariff of 10%. China will see a 10% tariff on its exports to the US. These measures have already triggered a downturn in global financial markets, with Asian sharemarkets experiencing significant declines on Monday.
The US Department of Finance has published a list of American products that will face a 25% retaliatory tariff upon entering Canada, signaling potential trade friction between the two nations. In response to the tariffs, China has announced its intention to file a lawsuit, further intensifying the trade tensions. Analysts have expressed concerns over these developments, predicting potential drags on corporate earnings and broader market instability.
Asian markets reacted swiftly to the tariff news. Japan's Topix index and Korea's Kospi fell sharply by 2.3% and 2.4%, respectively. The US dollar surged to a record high against the offshore Chinese yuan, while the euro dropped as much as 2.3% to $1.0125. European futures mirrored this downward trend, plummeting by as much as 3.4%. Notably, China's sharemarkets remained closed due to the lunar new year holidays, temporarily shielding them from immediate volatility.
"It will definitely happen with the European Union, I can tell you that." – Donald Trump
President Trump's comments suggest that the European Union might be the next target for US tariffs, adding another layer of complexity to the already tense trade landscape. ING analysts, led by Inga Fechner, reflected on past trade tensions during Trump's first term, highlighting both the benefits and drawbacks of globalization.
"During Trump’s first term in office, tariffs and trade tensions brought attention to the more general topic of the advantages but also disadvantages of globalisation," – ING analysts led by Inga Fechner
The impact of these tariffs is not limited to market reactions. Economists forecast a potential 2.8% reduction in S&P 500 company earnings, factoring in possible retaliatory actions from affected countries. Mexico's President, Claudia Sheinbaum, emphasized her country's resolve to implement retaliatory tariffs while also exploring alternative strategies to prevent direct confrontation.