LONDON: Stock markets across the world slumped on Tuesday as concerns over a deepening global trade war intensified following the imposition of new US tariffs on imports from China, Canada, and Mexico.
The market turmoil followed President Donald Trump’s decision to introduce 25% tariffs on goods from Canada and Mexico, along with 20% levies on imports from China.
In response, all three nations announced retaliatory measures, heightening fears of a full-blown trade war.
US stock markets experienced sharp declines, with the Dow Jones Industrial Average falling 0.9% to 42,790.20 points, the S&P 500 dropping 0.9% to 5,799.25, and the Nasdaq Composite losing 1.0% to 18,171.97 in early trading.
European markets were also hit hard, with the FTSE 100 in London down 1.0%, while Germany’s DAX fell 2.8% and France’s CAC 40 slid 1.9%.
In Asia, Japan’s Nikkei 225 closed 1.2% lower, while Hong Kong’s Hang Seng Index dropped 0.3%.
Kathleen Brooks, research director at trading platform XTB, said investors were rattled by the escalating trade tensions.
“Investors don’t like tariffs, and they are deeply uncomfortable with President Trump’s new world order, which is weighing on market sentiment,” she told AFP.
Canada, China, and Mexico hit back
The affected countries swiftly announced countermeasures. Canadian Prime Minister Justin Trudeau condemned the US move, calling it “unjustified”, and declared that Canada would impose 25% tariffs on $150 billion worth of US goods.
“There is no justification for [the US’s] actions… Canada will not let this unjustified decision go unanswered,” Trudeau said in a statement on Monday.
China, the United States’ largest buyer of agricultural goods, imposed 10-15% tariffs on key American exports, including wheat, corn, beef, and soybeans.
Chinese Foreign Ministry spokesman Lin Jian warned: “If the United States persists in waging a tariff war, a trade war, or any other kind of war, the Chinese side will fight them to the bitter end.”
In Mexico, President Claudia Sheinbaum reassured citizens that her government had contingency plans in place.
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“We need composure, serenity, and patience. We have Plan A, Plan B, Plan C, and even Plan D,” she said. Further details on Mexico’s response are expected to be revealed later this week.
Potential economic fallout
Experts warn that the tariffs could have severe consequences for consumers and businesses worldwide.
Andrew Wilson, from the International Chamber of Commerce, told BBC Radio 4’s Today programme that the US was experiencing its biggest effective tariff increase since the 1940s.
“What we’re seeing is the biggest effective increase in US tariffs since the 1940s – with severe economic risks attached to that,” he said.
According to Yale University estimates, these tariffs could cost US households up to $2,000 this year alone.
Similarly, a TD Economics analysis suggests that the price of vehicles in North America could rise by $3,000 due to supply chain disruptions, as auto parts cross the US, Canadian, and Mexican borders multiple times before final assembly.
Other consumer goods are also expected to become more expensive. Brian Cornell, chief executive of US retailer Target, told CNBC that prices for strawberries, avocados, and bananas could rise within days.
Canada’s billion-dollar maple syrup industry, which supplies 75% of the world’s production, could also be affected, leading to price hikes in the US.
Global economic stability
The European Union voiced strong opposition to the tariffs, warning that they could “disrupt global trade”.
EU trade spokesman Olof Gill stated, “These tariffs threaten deeply integrated supply chains, investment flows, and economic stability across the Atlantic.”
Amid fears that Europe might be next on Trump’s target list, French Economy Minister Eric Lombard insisted that the EU would stand firm in negotiations.
“We have negotiators who are playing hardball. We will play hardball, but we need to reach a balanced deal to protect our economies,” he told AFP.
Broader economic impact
Beyond trade tensions, financial markets faced additional concerns. Bitcoin dropped below $83,000, while the US dollar weakened.
Crude oil prices also fell, with West Texas Intermediate down 1.0% at $67.66 per barrel and Brent crude declining 1.5% to $70.55 per barrel.
Investors are now looking to key economic events later this week, including China’s National People’s Congress, where a major stimulus package could be announced.
Additionally, the European Central Bank is expected to cut interest rates on Thursday in an attempt to boost the struggling eurozone economy.
On Friday, the US jobs report will provide further insight into the economic outlook.
Future of global trade
While the Trump administration argues that tariffs will protect US jobs, boost domestic manufacturing, and increase tax revenues, many analysts warn they could have the opposite effect.
The increased costs on imports may be passed on to consumers, while retaliatory tariffs could harm American businesses exporting goods abroad.
As Deutsche Bank analyst Jim Reid noted, “The US administration is continuing to cause even more global upheaval… but there is still some market doubt as to whether all these tariffs will persist for a prolonged period of time.”
