Trump's tariffs on Canada, Mexico and China: Fears of a global trade war shake markets!
Global markets were in turmoil in Asia on Monday as investors feared a global trade war. U.S. President Donald Trump signed an executive order on Saturday to move forward with promised tariffs on Canada, Mexico and China. In response, the three countries warned of retaliatory measures.
The White House will formally impose a 25% tariff on goods from Canada and Mexico, and a 10% tariff on Chinese imports, starting Tuesday. However, Canadian energy imports will face a lower 10% tariff to prevent a devastating impact on U.S. gasoline and shale oil prices at home. Trump added that retaliation from those countries could result in an increase or expansion of their export tariffs.
Euro plunges as markets face turbulence
Global markets were in for a volatile session in Asian trading on Monday. The US dollar rose, while currencies exposed to potential US tariffs fell. The Canadian dollar fell against the US dollar to its lowest level in more than two decades, and the Mexican peso-USD pair fell to a four-year low.
The euro fell more than 1% against the dollar to its lowest level in more than two years, only briefly touching mid-January levels. Other commodity currencies, including the Australian dollar and New Zealand dollar, also saw sharp declines of 2% against the greenback, falling to multi-year lows.
In commodities, crude oil prices rose 4% before a pullback due to a lower tariff on Canadian energy imports. However, metals prices, including gold, silver and copper, were all lower on a strong dollar. Cryptocurrencies were also hit hard amid prevailing risk sentiment. Bitcoin fell to just above $94,000 (€92,000) at 4:30 a.m. ECT from $101,000 (€99,000) over the weekend.
Asian stock markets were mostly lower on Monday, while U.S. and European futures fell sharply. Sectors exposed to U.S. tariffs could face the strongest headwinds, especially the auto industry. European carmakers, especially those with Mexican plants, such as BMW, could experience a volatile session.
Government bond yields, which are usually in line with borrowing costs, could be under pressure in the US and the EU today. While long-term government bonds are often seen as safe havens in times of uncertainty, Trump’s tariffs and the threat of retaliation could intensify global inflationary pressures, potentially disrupting central bank easing cycles.
Canada, Mexico and China towards countermeasures
Canadian Prime Minister Justin Trudeau said the country will impose 25% tariffs on $155 billion worth of U.S. goods, including American alcohol, agricultural products, consumer goods and materials. The tariffs on $30 billion worth of goods will take effect on Tuesday.
However, economists expect Canada could fall into recession as a result of the increased US tariffs and retaliatory measures, which would be the first economic contraction since the pandemic. President Trump said in his tweet that his tariffs are aimed at curbing illegal immigrants and deadly drugs, including fentanyl, by targeting Mexico and China. Both countries did not immediately respond with counter-tariffs, but expressed intentions to retaliate.
Mexican President Claudia Sheinbaum posted on X that the country is working on a “Plan B” that includes tariff and non-tariff measures to protect Mexico’s interests. She added that further details would be announced later on Monday and stressed that the parties should work in a comprehensive manner and according to the principles of shared responsibilities. China’s Ministry of Commerce issued a statement on Sunday, saying that “China is very dissatisfied with this and firmly opposes it.”
A government spokesman said the unilateral tariffs "seriously violate" World Trade Organization (WTO) rules. China plans to file a complaint with the WTO, keeping the door open for negotiations. "China hopes the United States will correct its wrongdoings and work with China to address these issues," the spokesman said.
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