Stock markets around the globe have fallen sharply after US president Donald Trump put tariffs on imports from Canada, Mexico and China, causing fears of a trade war to spike.
The Trump administration has imposed a 25% tariff on goods from Canada and Mexico, which are the US’s two biggest trading partners, on more than $918bn of the countries’ exports to the US. Meanwhile, the tariff on Chinese goods has doubled to 20%.
Lindsay James, investment strategist at Quilter Investors, said investors have been forced to adjust to “yet more unexpected and economically illogical policy” from Trump’s White House following last night’s surprise announcement.
“With the recent one-month reprieve on these tariffs seen as a sign that they were purely designed to extract action on further strengthening of borders, their sudden implementation has been met with an immediate response and sharply escalates the risk of an all-out global trade war between America and the rest of the world,” she added.
“Whether investors will continue to believe that Trump sees the stock market as a barometer of his success will be sorely tested. With a four-year time horizon before the next election, short-term weakness can no doubt be stomached by the White House.
“However, in effectively blackmailing companies to bring manufacturing onshore he is making is a dangerous and high stakes move, with retaliation and lower growth the clearest outcomes in a highly uncertain world.”
Indeed, the countries – which Trump has consistently focused on when threatening to apply tariffs to the US’ trading partners – immediately retaliated with tariffs of their own.
China said it will impose an additional 15% of tariffs on chicken, corn, cotton and wheat, as well as a further 10% on aquatic products, beef, dairy products, fruits, pork, sorghum, soya beans and vegetables.
Canada will apply immediate 25% tariffs on C$30bn of US imports. Canadian prime minister Justin Trudeau has previously suggested US beer, wine, bourbon, home appliances and orange juice would be targets.
Mexico’s economy ministry said the country will announce its response later today.
The news sparked a swift stock market sell-off. The US S&P 500 ended Monday’s session down 1.76%, while Japan’s Nikkei 225 shed 1.20% overnight, Hong Kong’s Hang Seng fell 0.28% and Taiwan’s TWI lost 0.70%.
Markets opened down in Europe as well. The FTSE 100 dropped 0.73% in the hour after opening this morning but has gained some ground since. France, Germany and Spain were also among the European markets falling on the news, while the STOXX Europe 600 is down around 0.9%.
Russ Mould, investment director at AJ Bell, said: “Asian and European markets were a sea of red, although the extent of the market sell-off wasn’t as bad as it could have been under the circumstances.
“One-third of the FTSE 100 was in positive territory, led by product certification and testing group Intertek which issued an upbeat set of results, announced a target to achieve higher margins and launched a £350m share buyback programme.
“The DAX gave up some of its recent gains as automotive stocks slipped on the prospect of being hit by tariffs. Rheinmetall bucked the trend and continued its charge as investors embraced defence stocks, making the sector one of the hot investment areas so far this year.”