US President Donald Trump has launched a trade war with sweeping tariffs on Canada, Mexico, and China, sparking global market jolt. The move threatens to undermine economic growth and reignite inflation.
Mexico and Canada, the US’s top two trading partners, have vowed immediate retaliation. China has also announced countermeasures. This sets the stage for a round of turbulence in markets.
The risk of a global trade war could hurt US corporate profits, pressure inflation, and weaken currencies such as the Canadian dollar and Chinese yuan. Analysts expect significant currency fluctuations when Asian markets open after hopes for a reprieve were dashed.
Canada’s dollar has hit five-year lows around 1.459 per dollar last week. Mexico’s peso would suffer a near-12% fall if the US hits the country with 25% trade tariffs, JPMorgan estimated. Analysts also expect a selloff in stocks and other higher-risk assets when markets reopen on Monday.
The executive order includes a provision for Trump to increase the size and scope of the tariffs if countries affected seek to retaliate. Goldman Sachs economists have estimated that across-the-board tariffs on Canada and Mexico would imply a 0.7% increase in core inflation and a 0.4% hit to gross domestic product.
Global markets are bracing for a fresh jolt as Trump’s trade war threatens to drive up consumer prices, potentially leading to higher interest rates in the US. The European Central Bank policymaker Klaas Knot expects new tariffs will lead to higher inflation and interest rates in the US that will likely weaken the euro.
Source: https://www.reuters.com/markets/us/tariffs-worry-wall-street-over-earnings-hit-inflation-pressure-2025-02-02