Global markets brace for fallout from Trump tariffs

Markets around the world braced for volatile trading on Monday as investors began to assess the potential fallout from President Donald Trump’s announcement of tariffs on Mexico, Canada and China. On Monday, markets in Japan and South Korea were more than 2 per cent lower.
The Taiwan Stock Exchange weighted index slumped about 4 per cent. Overnight trading on Wall Street pointed to a sharp slide for US stocks when the markets open in New York on Monday.
As investors begin to assess the potential fallout from what could be the start of a disruptive trade war, big exporting countries in Asia are likely to be particularly affected. Companies are exposed to the tariffs because they have made sizable investments in North America under agreements meant to facilitate trade.
Some of the biggest share-price declines in Asia on Monday were among Japanese auto manufacturers, which have poured billions into supply chains in Canada and Mexico that could be hit by new taxes. Toyota Motor fell nearly 5 per cent in early trading Monday, while Honda Motor and Nissan Motor slumped more than 7 per cent.
Semiconductor giant Taiwan Semiconductor Manufacturing Co. fell more than 5 per cent in trading Monday morning. Trump had said on Saturday that he expected tariffs would be placed on chips as well as oil and gas later this month. Over the weekend, Trump followed through on his promise to impose tariffs of 25 per cent on Canadian and Mexican goods, except for Canadian energy products, which will be levied at 10 per cent. Trump also imposed a further 10 per cent tax on goods from China.
In the United States, the prospect of retaliation sparking a full-scale tariff war has heightened fears among investors and economists that the inflationary pressure that dogged the economy after the pandemic could swiftly return.
Shortly after Trump’s weekend announcement, leaders in Canada and Mexico said they would respond by levying retaliatory tariffs on US goods. The peso and Canadian dollar both declined as the dollar strengthened.
Worries about a reigniting of inflation helped nudge the two-year Treasury yield, which is sensitive to changes in interest rate expectations, slightly higher. “Rising trade policy uncertainty will heighten financial market volatility and strain the private sector, despite the administration’s pro-business rhetoric,” said Gregory Daco, chief economist for the consulting firm EY-Parthenon.
The initial reaction from China, which as a big exporter could be damaged more than the United States in a global trade war, was cautious: The Ministry of Commerce said it would challenge the tariffs at the World Trade Organisation.
Markets in China were closed on Monday for the Lunar New Year holiday. Stocks in Hong Kong, where many Chinese companies trade, fell about 2 per cent. Meanwhile, oil prices also rose following news of the tariffs, as traders tried to analyse how tariffs on Canada and Mexico – the two biggest sources of oil imports to the US – would affect the market.
The benchmark Brent crude oil price was up about 1 per cent at $76.50 a barrel. The tariffs announced by the Trump administration over the weekend target the United States’ three largest trading partners. Chief investment strategist at investment bank Saxo, Charu Chanana, warned that while tariffs could be beneficial for the US economy in the short term, in the long run they pose significant risks.