Markets respond to Trump’s tariff pledge

Overview of Market Reactions

Initial Dollar Rally

The dollar rallied by 1% against the Canadian dollar and 2% against the Mexican peso following the announcement. This reaction suggests that investors expect the tariffs to have a significant impact on trade between the U.S. and its neighbors.

Negative Reaction from Share Markets

Share markets in Asia fell, as did European equity futures, indicating that investors are concerned about the potential economic impact of the tariffs.

S&P 500 Futures Fall

S&P 500 futures fell by 0.3%, suggesting that investors are also concerned about the potential impact on the U.S. economy.

Initial Reaction

The announcement by U.S. President-elect Donald Trump to impose a 25% tariff on all products from Mexico and Canada, and an additional 10% tariff on goods from China, sparked a dollar rally. The dollar rose 1% against the Canadian dollar and 2% against the Mexican peso.

Market Participant Reactions

Naka MatsuZawa, Chief Macro Strategist, Nomura, Tokyo

MatsuZawa notes that the 10% tariff on China is not as big as the one Trump was talking about, but still came in a more concrete way, leading to an initial negative reaction. He suggests that if this stops at 10%, it wouldn’t be catastrophic to China’s economy and probably less so for the global economy.

Gary Ng, Senior Economist, Natixis, Hong Kong

Ng notes that the USMCA agreement is technically only up for renegotiation in 2026, but Trump is likely trying to kickstart the renewal process early with Canada and Mexico through today’s tariff announcements. He suggests that MXN and CAD had a kneejerk reaction lower, but thin liquidity outside North America time zone may have contributed to the outsized moves seen in Asia this morning.

William Reinsch, Senior Advisor, Center for Strategic and International Studies

Reinsch notes that “This strikes me more as a threat than anything else.” He also says “I guess the idea is if you keep hitting them in the face, eventually they’ll surrender. It didn’t work with China, and I don’t think it’ll work with Mexico and Canada.”

Shoki Omori, Chief Japan Desk Strategist, Mizuho Securities, Tokyo

Omori notes that initial reaction on CAD, MXN, etc seems to have been big, but MXN looks resilient because it already fell against the dollar when Trump was elected. He also says that MXN is favored by carry traders, so he feels MXN will be bought by dip buyers if Trump doesn’t go further.

Jason Wong, Senior Market Strategist, BNZ, Wellington

Wong notes that the USMCA agreement is technically only up for renegotiation in 2026, but Trump is likely trying to kickstart the renewal process early with Canada and Mexico through today’s tariff announcements.

Khoon Goh, Head of Asia Research, ANZ, Singapore

Goh notes that it looks like he’s not going to waste much time… so the question now is – on day 1 is he actually going to follow through with it and will the tariffs hit on day 1?

MatsuZawa notes that ten percent across the board (for China) is not as big as the one that he was talking about, 60%. But it still came in a more concrete way, so I think the initial reaction was rather negative. He also says if this stops at 10%, it wouldn’t be catastrophic to China’s economy and probably less so for (the economy) globally.

Ng notes that ten percent across the board (for China) is not as big as the one that he was talking about, 60%. But it still came in a more concrete way, so I think the initial reaction was rather negative. He also says if this stops at 10%, it wouldn’t be catastrophic to China’s economy and probably less so for (the economy) globally.

Sean Callow, Senior FX Analyst, ITC Markets, Sydney

Callow notes that it was just last month that Trump said that ‘the most beautiful word in the dictionary is tariff’ so there really should not have been a surprise in Trump’s intention, just in the timing of the comments. He also says the fall in trade-sensitive currencies makes sense and should persist near term given the quiet calendar, but Fed policy should return to the fore once we get closer to the December FOMC meeting.

Alex Loo, FX and Macro Strategist, TD Securities, Singapore

Loo notes that while the USMCA agreement is technically only up for renegotiation in 2026, Trump is likely trying to kickstart the renewal process early with Canada and Mexico through today’s tariff announcements. He also says MXN and CAD had a kneejerk reaction lower but thin liquidity outside North America time zone may have contributed to the outsized moves seen in Asia this morning.

Goh notes that it looks like he’s not going to waste much time… so the question now is – on day 1 is he actually going to follow through with it and will the tariffs hit on day 1? This reflects a concern about the potential impact of Trump’s actions on trade and economic policy.