The dollar soared, oil prices spiked, and stock markets fell after U.S. President Donald Trump followed through on his threat to impose tariffs on exports from Canada, Mexico, and China, a Bloomberg report said.
US Treasury yields went up, while stock futures dropped, and a key index tracking shares in the Asia-Pacific region also fell in response to these measures against some of America’s largest trade partners. The Canadian dollar dropped to its lowest level since 2003, and both the euro and Mexican peso also lost value.
As tensions quickly escalated, investors turned to safer assets, fearing the potential impact of Trump’s tariffs on inflation, global politics, and economic growth, the Bloomberg report said. Although Trump had long promised to impose these trade taxes to address issues like illegal immigration and drug trafficking, global stock markets had been hopeful that the tariffs would be delayed or avoided through negotiations.
George Saravelos, head of FX research at Deutsche Bank, stated that the market must adjust significantly to account for the risk of the trade war, as per Bloomberg. He noted that if the trade disruption with Canada and Mexico persists, its economic impact could be much greater than the effect of Brexit on the UK.
The dollar’s rise is driven by the expectation that tariffs will increase inflation, keeping U.S. interest rates high. At the same time, foreign economies are likely to suffer more than the U.S., which enhances the dollar’s appeal as a safe-haven asset. As U.S. demand for more expensive imports drops, foreign currencies take a hit.
Traders are bracing for significant volatility in stocks from industries most exposed to the potential fallout of a trade war. A UBS Group AG index tracking stocks vulnerable to the proposed tariffs dropped on Friday, driven by concerns that the tariffs could drive inflation and negatively impact company profits.
Automakers like General Motors and Stellantis, which rely heavily on global supply chains and have substantial ties to Mexico and Canada, are likely to see notable fluctuations. Electric vehicle manufacturers such as Tesla and Rivian may also face challenges. Mentions of “tariffs” are already rising during earnings calls.
In response to the US announcement, Canadian Prime Minister Justin Trudeau unveiled a 25% counter-tariff, while Mexican leader Claudia Sheinbaum promised retaliatory measures. China’s Commerce Ministry also pledged to implement “corresponding countermeasures” without further details, and indicated plans to file a complaint with the World Trade Organization.
The tariff announcement also led to a sharp rise in oil prices, as tariffs on imports from Canada and Mexico threaten to disrupt North America’s interconnected oil market and could drive up gasoline costs for US drivers.