Global markets are reeling from Donald Trump’s new tariffs on Canada, Mexico, and China, sparking fears of economic chaos and inflation.
Global Markets Reel from Trump‘s Tariff Move
Donald ‘chaos’ has been met with warnings that it could throw the global trade order into.
Economists have expressed concern that the impact of these tariffs will likely paralyze economic growth both in the US and around the world.
In 2018, President Donald Trump introduced tariffs on imported goods from several countries, including China, Canada, and the European Union.
The tariffs were imposed to protect American industries and workers, particularly in the steel and aluminum sectors.
The initial tariffs ranged from 25% to 30% and targeted over $50 billion worth of Chinese imports.
However, the trade dispute escalated, leading to retaliatory measures from affected countries.
Statistics show that the tariffs resulted in a significant increase in prices for consumers, with some estimates suggesting an additional '$1,000' per year for the average household.
The new tariffs, signed into law on Saturday, impose 25% additional duties on imports from Canada and Mexico and 10% on goods from China above the current tariff rate. Energy imports from Canada are subject to a 10% tariff. However, just hours before they were due to take effect, ‘pause the tariffs’ on Mexico for 30 days after talks with the country’s president.
Global stock markets dived, the dollar rallied, oil prices jumped, and world leaders readied tit-for-tat measures in response to Trump‘s tariff move. Asian stock markets fell by up to 2% on Monday, while some European markets saw similar drops after the US president warned that the European Union would be hit ‘pretty soon’ by similar tariffs.
The global market reaction to various events is a complex and dynamic phenomenon, influenced by multiple factors such as economic indicators, geopolitical tensions, and technological advancements.
Global markets can react positively or negatively to news, with reactions often being swift and unpredictable.
For instance, a strong GDP growth rate in a major economy can lead to increased investor confidence, causing stock prices to rise.
Conversely, a global pandemic can lead to market volatility and decreased investor sentiment.
Shares in European automakers, measured by the STOXX 600 index, fell more than 4% on Monday morning. German automakers, who export tens of thousands of cars to the US each year from Mexico, are likely to be hit hard by the new tariffs. Around two-thirds of Volkswagen‘s US-bound cars are produced in Mexico.
Canada and Mexico have vowed to retaliate against Trump‘s tariffs. Canadian Prime Minister Justin Trudeau announced 25% levies on $107 billion (€104.5 billion) of US imports, while Mexican President Claudia Sheinbaum ordered her economy minister to implement ‘Plan B,’ which includes unspecified tariff and non-tariff measures.
Trump held talks with the leaders of both countries on Monday as policymakers attempted last-ditch efforts to halt the new tariffs. Following her call, Sheinbaum said Trump had agreed to pause the tariffs on Mexico for a month, detailing his commitment in return.
The new tariffs are expected to raise US inflation by as much as 1%, affecting around 44% of all imports to the US – worth around $1.35 trillion. For US consumers, the measures could mean higher prices for essential goods like oil, electronics, and groceries, exacerbating the current cost of living crisis.
Higher inflation may prompt the US Federal Reserve to maintain or increase interest rates, some economists have warned. Deutsche Bank also said sustained tariffs would be ‘far larger in economic magnitude’ for the Canadian and Mexican economies than Brexit on the UK. Germany’s largest private lender expects both countries to tip into recession in the coming weeks.
The tariffs are expected to add $60 billion in costs to the North American auto industry, Bloomberg reported on Monday, citing research from automotive consultant AlixPartners. Separate data from Wolfe Research predicted that the average price of a new car in the US could rise by about $3,000.
The European Union‘s top diplomat, Kaja Kallas, warned on Monday that ‘there are no winners in trade wars.’ She added: ‘We [Europeans] need America, and America needs us as well.’
When he took office on January 20, Trump signed an executive order to investigate whether foreign countries are imposing discriminatory or extraterritorial taxes on US corporations. This probe is aimed primarily at the EU, with findings due to be published on April 1.
Bachmann said the EU is a ‘larger market and has more bargaining power.’ That could help the bloc avoid higher tariffs ‘if the Europeans stick together and don’t try to get special deals on a bilateral basis.’
However, he warned that Hungarian Prime Minister Viktor Orban and Italy’s Prime Minister Giorgia Meloni were threats to EU unity.
The Canada-Mexico trade relationship has experienced significant growth in recent years, with bilateral trade exceeding $24 billion in 2020.
Mexico is Canada's second-largest trading partner in the Americas, after the 'United States'.
Key exports from Canada to Mexico include energy products, forest products, and agricultural goods.
In return, Mexico supplies Canada with automotive parts, electronics, and machinery.
The two countries have a strong trade agreement in place, which has facilitated increased cooperation and investment.
