The News
Global markets slid Tuesday after US President Donald Trump’s tariffs targeting Canada, Mexico, and China came into effect, with investors increasingly concerned about an escalating trade war.
The tariffs — 25% on imports from Canada and Mexico and a further hike of up to 20% on China — prompted retaliation from Ottawa and Beijing targeting American exports.
Stocks across Asia and Europe fell, with the US S&P 500 on Monday suffering its worst one-day decline this year. Automakers, which are highly dependent on a complex global supply chain, were particularly hard hit by the decline.
“The market finally took the Trump administration at its word, and the realization that the tariff talk wasn’t just a negotiating tactic is starting to sink in,” one investment strategist told The New York Times’ Dealbook.
SIGNALS
Tariffs projected to worsen US inflation
Many economists have repeatedly warned that Donald Trump’s tariff proposals will slow US growth and increase inflation. Already, inflation had begun to creep up through the end of last year, prompting the US Federal Reserve to pause its interest rate cutting program, but the increasingly inflationary outlook could force a rethink, analysts told the BBC. Key will be whether the cost of tariffs are “passed along or if producers find a way to lower prices to offset the impact,” Reuters noted. Trump was reelected on pocketbook issues, but Americans’ views of how he is tackling high prices are increasingly turning negative. Data from his first-term tariffs shows that the knock-on costs to US businesses were “almost entirely passed on to domestic consumers,” one trade expert told The Conversation.
Trade policy underscores Trump’s ‘America First’ worldview
Donald Trump has positioned rebalancing the US trade equilibrium as key to fulfilling the promise of his “America First” agenda, seemingly regardless of the impact on Washington’s oldest and closest allies. For Trump, it’s not a new position: He has long considered tariffs as “an almost supernatural economic tool,” CNN noted. “Alongside immigration, the conceit that foreign nations are constantly ripping America off forms the foundation of his political career.” Trump’s trade escalations, coupled with his growing rift with Ukraine, risks leaving America “more isolated on the world stage,” The New York Times wrote, but to the president, the approach has forced other world powers to take the US more seriously.
Canada and Mexico could break away from decades-long partnership
Canada and Mexico have both bet heavily on free trade with the US, The Wall Street Journal noted: Under the countries’ trade agreement, which was renegotiated during Donald Trump’s first term, Mexico and Canada’s economies have become almost inextricably intertwined with America’s, with 80% of both countries’ exports flowing across the border to the US. Yet there is a risk that these countries decide the US is no longer a reliable partner — even if the new levies are rolled back. Domestically, US automakers are braced for a hard hit: The geographical proximity of Detroit to Canada means parts and cars flow across the border daily, and analysts have questioned whether the US can replace that supply chain.