Singapore: Global financial markets reacted sharply on Monday after U.S. President Donald Trump imposed sweeping tariffs on major trading partners, triggering fears of an escalating trade war. Investors rushed to buy U.S. dollars, offloaded stocks, and braced for potential inflationary pressures as they assessed the broader economic impact of the new tariffs.
Trump’s Tariff Offensive
Trump’s latest trade measures include:
- 25% tariffs on imports from Mexico and most goods from Canada.
- 10% tariffs on a wide range of Chinese goods.
The announcement, which lacked detailed implementation guidelines, took effect on Tuesday, catching markets off guard. Many investors had previously believed Trump’s tariff threats were largely posturing.
“Trump’s trade war has started,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets in Singapore. He noted that the U.S. dollar is unlikely to weaken in the near future.
Market Fallout
The U.S. dollar strengthened as traders anticipated that countries hit by tariffs might devalue their currencies to offset the impact. The euro tumbled 1.3% amid fears that Europe could be the next target for tariffs.
Other market reactions included:
- Canadian dollar: Plunged to a 20-year low against the U.S. dollar.
- Chinese yuan: Declined in offshore trading.
- Stock markets: Global equities fell sharply, with U.S. futures dropping 2%, signaling potential losses on Wall Street.
- Oil prices: Spiked due to concerns over supply chain disruptions.
- Metals: Slumped on worries about weaker global demand.
Global Response and Retaliation
Governments worldwide began preparing their countermeasures:
- Canada: Announced immediate retaliatory tariffs.
- Mexico: Warned of similar countermeasures.
- China: Vowed to challenge the tariffs at the World Trade Organization and implement unspecified responses.
Shares of Taiwanese tech companies with manufacturing plants in Mexico were among the hardest hit, with:
- Foxconn (2317.TW) dropping 8%
- Quanta (2382.TW) falling 10%
- Inventec (2356.TW) sliding 8%
In Asia, stock markets in Hong Kong, Tokyo, Sydney, Seoul, and Taipei all fell by approximately 2%, while European stock futures slumped 2.8%.
Investor Sentiment: Anxiety and Uncertainty
Market analysts warned that the full consequences of Trump’s tariffs are not yet fully priced in.
“I don’t believe market participants have fully grasped the extent of the potential fallout yet, especially as responses from affected countries unfold,” said Tareck Horchani, head of prime brokerage dealing at Maybank Securities in Singapore.
Many investors had positioned themselves in gold and U.S. dollars in anticipation of trade tensions, but some were still caught off guard by Trump’s decisive action.
“It’s possible that some investors underestimated Trump’s resolve on tariffs, expecting more negotiation rather than immediate action,” Horchani added.
Gold and Cryptocurrencies React
Gold, which had scaled record highs on Friday, edged slightly lower as the stronger U.S. dollar weighed on the metal.
Cryptocurrencies, which often reflect investor risk appetite, saw heavy losses:
- Bitcoin: Fell 8% since Friday, trading at $93,700.
- Ethereum: Plunged 25% to $2,500, wiping out all gains since Trump’s election.
Tariff Rationale and Potential Policy Shifts
The lack of clarity surrounding the duration and objectives of Trump’s tariffs has fueled speculation. Some investors believe the tariffs could be temporary and used as leverage for future negotiations.
Trump has linked the trade measures to broader social and security concerns, including the flow of migrants and drugs, particularly fentanyl, into the United States. He has demanded stricter crackdowns from Canada, China, and Mexico.
However, both China and Mexico have pushed back, arguing that fentanyl-related issues are primarily a U.S. domestic problem.
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Economic Uncertainty and Bond Markets
Rick Meckler, a partner at Cherry Lane Investments in New Jersey, warned that broad-based tariffs could have unintended consequences.
“These generalized tariffs that cover a much wider range of products and are targeted toward social policy have usually proven to be a mistake,” Meckler said.
He added that market skepticism remains high:
“A full reaction won’t be reached until it’s clear this is the policy, however.”
Debt markets reflected mixed sentiments, with 10-year U.S. Treasury yields slipping 4.5 basis points to 4.52%. While tariffs could increase inflation, they could also slow economic growth, potentially prompting the Federal Reserve to consider interest rate cuts.
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Outlook: Uncertainty Looms
With markets already reeling, attention now shifts to how affected countries will respond in the coming days. If retaliatory measures escalate, the global economy could face renewed trade tensions, dampening investor confidence and economic growth.
