Trump tariffs: Stocks slump, trade war fears triggered

Asian stock markets slumped on Monday, February 3, and European and US equity futures pointed sharply lower after President Donald Trump’s tariffs on Canada, Mexico and China triggered fears of a broad trade war and a hit to global growth.

The US dollar shot to a record peak against the Chinese yuan in offshore trading, its highest against Canada’s currency since 2003 and the strongest against the Mexican peso since 2022.

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Stocks in Hong Kong, which include listings of Chinese companies, fell 1.1 per cent upon reopening from Lunar New Year holidays. Mainland Chinese markets resume trading following the holidays on Wednesday.

Duties imposed on Canada and Mexico

Trump slapped Canada and Mexico with duties of 25 per cent and China with a 10 per cent levy at the weekend, calling them necessary to combat the flow of migrants and fentanyl into the US.

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Canada and Mexico immediately vowed retaliatory measures, and China said it would challenge Trump’s levies at the World Trade Organization.

The tariffs, outlined in three executive orders, are due to take effect at 12:01 am ET (0501 GMT) on Tuesday.

Ushering of a global trade war

Trump’s move was the first strike in what could usher in a destructive global trade war and drive a surge in US inflation that would “come even faster and be larger than we initially expected,” said Paul Ashworth of Capital Economics.

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A model gauging the economic impact of Trump’s tariff plan from EY chief economist Greg Daco suggests it would reduce US economic growth by 1.5 percentage points this year, throw Canada and Mexico into recession and usher in “stagflation” at home.

Barclays strategists previously estimated that the tariffs could create a 2.8 per cent drag on S&P 500 company earnings, including the projected fallout from retaliatory measures from the targeted countries.

Fluctuations in currencies

The US currency climbed as much as 2.8 per cent to 21.2547 Mexican pesos, the highest since March 2022, and rose 1.4 per cent to a level not seen since 2003.

The euro dropped as much as 2.3 per cent to $1.0125 – the lowest level since November 2022. At the weekend, Trump said tariffs on Europe will “definitely happen”.

US two-year Treasury yields rose as much as 3.6 basis points to 4.274 per cent, a one-week high, on concerns tariffs will stoke US inflation and delay Federal Reserve interest-rate cuts.

Two-year Japanese government bond yields rose in sympathy, reaching their highest levels since October 2008.

Leading cryptocurrency bitcoin tumbled to as low as $91,439.89, a three-week trough.