Markets Anticipate Volatility Following Tariff Announcements by President Trump
Markets are poised for volatility as investors react to President Trump's new tariffs on Mexico, Canada, and China, impacting stock prices and raising inflation concerns.
Markets around the world braced for volatile trading on Monday as investors assessed the potential fallout from President Trump's announcement of tariffs on Mexico, Canada, and China.
On Monday morning, markets in Japan and South Korea opened more than 2 percent lower. Overnight trading on Wall Street indicated a sharp slide for U.S. stocks when the markets open in New York. The peso and Canadian dollar both declined as the U.S. dollar strengthened.
As investors begin to evaluate the potential fallout from what could be the start of a disruptive trade war, Japan and South Korea are seen as two countries likely to be particularly affected. Companies are exposed to the tariffs due to significant investments in North America under agreements aimed at facilitating trade.
Some of the biggest share-price declines in Asia on Monday were among Japanese auto manufacturers, who have invested billions into supply chains in Canada and Mexico that could be impacted by new taxes. Toyota Motor fell nearly 5 percent in early trading on Monday, while Honda Motor and Nissan Motor slumped more than 7 percent.
On Saturday, Mr. Trump followed through on his promise to impose tariffs of 25 percent on Canadian and Mexican goods, with the exception of Canadian energy products, which will incur a 10 percent levy. Additionally, a further 10 percent tax was placed on goods from China.
In the United States, the threat of retaliation sparking a full-scale tariff war has heightened fears among investors and economists that inflationary pressures, which affected the economy post-pandemic, could swiftly return.
Shortly after Mr. Trump's weekend announcement, leaders in Canada and Mexico responded by stating they would impose retaliatory tariffs on U.S. goods.
The initial reaction from China, a major exporter that could be more affected than the United States in a global trade war, was cautious: The Ministry of Commerce announced it would challenge the tariffs at the World Trade Organization. Markets in China were closed on Monday due to the Lunar New Year holiday.
Concerns about a resurgence of inflation contributed to a slight increase in the two-year Treasury yield, which is sensitive to changes in interest rate expectations.
"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.
