The world’s financial markets are in turmoil amid fears over an all-out global trade war after US President Donald Trump imposed blanket tariffs on Canada, Mexico, and China.
Global markets were in turmoil in Asia on Monday as investors were fearful of a gearing up global trade war. US President Donald Trump signed an executive order on Saturday to go ahead with his pledged tariffs on Canada, Mexico, and China. In response, all three nations warned of retaliatory countermeasures.
The White House will officially impose a 25% tariff on goods from Canada and Mexico, and a 10% tariff on Chinese imports starting Tuesday. However, Canadian energy imports will face a lower tariff of 10% to prevent a disruptive impact on American gasoline and home-hearing oil prices. Trump added that retaliation from these countries may result in an increase or expansion in scope of their export costs.
The euro plunges as markets face turbulence
Global markets rode on a volatile session on Monday’s Asian session. The US dollar surged, while currencies exposed to potential US tariffs plunged.
The Canadian dollar tumbled against the US dollar to its lowest in more than two decades, and the Mexican Peso-USD pair slumped to a four-year low. The euro slumped more than 1% against the dollar to its lowest in more than two years, only briefly touching the level in mid-January. Other commodity currencies, including the Australian dollar and the New Zealand dollar, also experience sharp declines of 2% against the greenback, dropping to their multi-year lows.
In commodities, crude oil prices surged 4% before a retreat due to a lower tariff on Canadian energy imports. However, metal prices, including gold, silver, and copper were all lower on a strong dollar. Cryptocurrencies were also badly hit amid the prevailing risk-off sentiment. Bitcoin slumped to just above $94,000 (€92,000) at 4:30 am ECT from $101,000 (€99,000) over the weekend.
Asian equity markets were mostly lower on Monday, while the US and European stock futures sharply declined. Sectors that are exposed to the US tariffs may face the strongest headwinds, particularly the automobile industry. European car manufacturers, especially those with Mexican plants, such as BMW, may experience a volatile session.
“This week, investors are likely to go risk-off – particularly as Trump has said he is unphased by the market reaction,” Josh Gilbert, a market analyst at eToro Australia, wrote in a note.
Government bond yields – typically aligned with borrowing costs – may be under pressure in the US and the EU today. While long-term government bonds are often considered safe-haven assets in times of uncertainty, Trump’s tariffs and the threat of retaliation could intensify global inflationary pressures, potentially disrupting central banks’ easing cycles.
Canada, Mexico and China to impose countermeasures
The Prime Minister of Canada, Justin Trudeau, said the country will impose 25% on US goods worth C$155 billion (€102.8 billion), ranging from American alcohol, agriculture products, daily consumer items, and materials. Duties on C$30 billion (€19.9 billion) worth of goods will take effect on Tuesday. However, economists expect Canada may fall into a recession as a result of the increased US tariff and the retaliatory measures, which would be the first economic contraction since the pandemic.
President Trump said in his X post that his tariffs aim to curb illegal migrants and deadly drugs, including fentanyl, targeting Mexico and China. The two countries did not act with an immediate counter-tariff but expressed intentions to retaliate.
Mexcian President Claudia Sheinbaum posted on X that the country is working on a “Plan B” involving tariff and non-tariff measures to defend Mexico’s interests. She added that further details will be announced later on Monday and stressed parties must work in a comprehensive manner and under the principles of shared responsibilities.
China’s Ministry of Commerce issued a statement on Sunday, declaring that “China is strongly dissatisfied with this and firmly opposes it”.
A government spokesperson said the unilateral tariffs “seriously violate” World Trade Organization (WTO) rules. China plans to file a lawsuit with the WTO while keeping the door open for negotiations.
“China hopes that the United States will correct its wrongful actions and work with China to address these issues”, the spokesperson stated.