Rising geopolitical tensions and the possibility of tit-for-tat tariffs escalating the global trade dispute are making investors more cautious worldwide.
Following US President Donald Trump’s declaration that tariffs on Canada and Mexico would proceed as scheduled, stock markets around the world plummeted. Financial markets were rocked by Trump’s remarks on Monday, which sparked worries about a North American trade war. Late afternoon trading saw a steep decline in US stocks, as well as a decline in the Canadian currency and Mexican peso.
Following the expiration of the 30-day duty moratorium linked to unlawful border crossings and the flow of fentanyl into the United States, the US President has announced that 25% American tariffs on imports from Canada and Mexico will go into force on Tuesday. In order to punish Beijing for not stopping fentanyl shipments to the US, the American also reiterated his intention to raise taxes on all Chinese imports from the current 10% duty to 20%.
What Did Trump Say?
They will need to impose a tariff. In order to avoid tariffs, they must, to be honest, develop their auto factories and other facilities in the United States,” Trump stated at the White House.
According to him, there was “no room left” for an agreement that would prevent the tariffs by reducing the amount of fentanyl entering the US.
The president issued an order imposing higher duties on all Chinese imports, claiming Beijing “has not taken adequate steps to alleviate the illicit drug crisis.”
The Trump administration confirmed in Federal Register notices that the tariffs will go into effect on Tuesday at 12:01 a.m. EST (0501 GMT). The US Customs and Border Protection agency will then start collecting 25% of Mexican and Canadian commodities, with a 10% levy applied on Canadian energy.
Despite the tight ties, particularly in North America, where businesses have enjoyed decades of free trade, Trump has long argued that tariffs are a valuable tool to rectify trade imbalances and preserve US manufacturing, dismissing worries that the measures could harm the US economy.
The highly linked North American economy would suffer a significant blow as a result of Trump’s tariffs on Canada and Mexico, which apply to over $900 billion in yearly US imports, according to CEOs and economists.
Canada, Mexico And China Respond
There won’t be a public reaction until Tuesday’s routine morning press conference by President Claudia Sheinbaum, according to Mexico’s economy ministry. She seemed to be sending a message to Trump on Monday when she stated that “Mexico has to be respected” during a public event in the city of Colima.
“We have a plan B, C, D.” She has promised to reply.
Melanie Joly, the foreign minister of Canada, told reporters that Ottawa was prepared to reply, but she did not elaborate.
The U.S. tariffs and Canada’s reprisal would be “an absolute disaster” for both nations, Ontario Premier Doug Ford warned NBC. Ford declared, “I don’t want to respond but we will respond like they’ve never seen before,” adding that he would stop nickel shipments and cross-border electricity transmission from Ontario to the United States and that Michigan auto facilities would probably close within a week.
When Ford remarked, “I’m going after absolutely everything,”
Beijing has preparing countermeasures, which are likely to target US food and agricultural imports, according to China’s state-run Global Times newspaper.
Markets Swoons
Following Trump’s remarks, the US’s three main indexes fell. The S&P 500 fell 104.78 points, or 1.76 percent, the Dow Jones Industrial Average fell 649.67 points, or 1.48 percent, and the Nasdaq Composite fell 497.09 points, or 2.64 percent, as the day came to a close. An indicator of the Magnificent Seven megacaps fell 3.1%. A UBS basket of US stocks that were adversely affected by tariffs fell 2.9%.
Asian and Australian markets were also affected, with shares in Sydney, Hong Kong, and Tokyo declining. The broader Topix index fell 1.48 percent, while the benchmark Nikkei 225 market fell 2.43 percent.
Following their Asian counterparts, Indian shares too opened Tuesday down. By 9:15 a.m. IST, the BSE Sensex had dropped 0.45 percent to 72,753.64, while the Nifty 50 had dropped 0.64 percent to 21,979.85.
The broader small- and mid-caps sank almost 1% each, while all 13 major sectors saw losses at the start of trading. Following an overnight loss in Wall Street stocks, the MSCI Asia ex-Japan fell by roughly 0.6%.
Rising geopolitical tensions and the possibility of tit-for-tat tariffs escalating the global trade dispute are making investors more cautious.
Shares of automakers plummeted, with Ford down 1.7% and General Motors, which produces a large number of trucks in Mexico, down 4%.
Price increases might be seen by customers in a matter of days, according to Cornell University public policy expert Gustavo Flores-Macias.
“The automobile sector, in particular, is likely to see considerable negative consequences, not only because of the disruption of the supply chains that crisscross the three countries in the manufacturing process, but also because of the expected increase in the price of vehicles, which can dampen demand,” said Flores-Macias.
Trump’s Plan For Reciprocal Tarif
Trump announced a new tariff investigation into copper imports last week, proposed costs of up to $1.5 million each time a Chinese-built ship enters a U.S. port, and ordered the resumption of a tariff probe on nations that impose taxes on digital services.
These are in addition to his intentions for greater “reciprocal tariffs” from the US to balance other nations’ trade barriers and equal their tariff rates. This move could have a significant impact on the European Union due to the value added taxes that member states impose.
But Desmond Lachman, a senior scholar at the conservative American Enterprise Institute, cautioned that Trump’s “tariffs on steroids” may keep inflation high and send the world economy into a recession.
