NEW YORK/LONDON, Feb 2 (Reuters) - Global markets are preparing for a new jolt on Monday after U.S. President Donald Trump initiated a trade war with tariffs on Canada, Mexico, and China that threaten to undermine economic growth and reignite inflation.
The trade war shakes the markets and unsettles Wall Street
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Sun, February 2, 2025, 9:23 AM AST 3 min read
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NEW YORK/LONDON, Feb 2 (Reuters) - Global markets are bracing for a new jolt on Monday after U.S. President Donald Trump initiated a trade war with tariffs on Canada, Mexico, and China that threaten to undermine economic growth and reignite inflation.
With Mexico and Canada - the two main trading partners of the United States - promising immediate retaliation and China saying it would take 'countermeasures', the stage is set for turbulence.
Markets took a heavy hit last week when the emergence of the Chinese artificial intelligence model DeepSeek affected tech stocks, and uncertainty surrounding Trump's tariffs has also weighed on the markets in general.
The risk of a global trade war could hurt U.S. corporate earnings and pressure inflation, which could thwart expectations for interest rate cuts in the U.S., and further weaken currencies like the Canadian dollar and the Chinese yuan.
"I think the markets are going to react," said Mark Malek, investment director of Siebert Financial in New York. "So far the market has really been on Trump's side, but that could change and the market could challenge him for the first time."
In three decrees, Trump imposed on Saturday a 25% tariff on Mexican imports and most Canadian ones, and a 10% tariff on goods from China, starting on Tuesday.
Canada said it would respond with 25% tariffs on $155 billion worth of U.S. goods, starting with $30 billion that would take effect on Tuesday and $125 billion 21 days later.
"It's negative for the CAD, MXN, and CNH, as well as for overall risk," said Nick Twidale, chief market analyst at ATFX Global in Sydney, referring to the Canadian, Mexican, and Chinese currencies.
Twidale expects considerable movements in currencies when Asian markets open, after hopes for an agreement faded.
The Mexican peso would suffer a decline of nearly 12% if the United States hits the country with 25% trade tariffs, JPMorgan estimated in a note published on Friday. The Mexican peso was trading around 20.6 per dollar late Friday.
Analysts also expect some kind of drop in stocks and other higher-risk assets when markets reopen on Monday.
Gene Goldman, investment director of Cetera Financial Group, said that the combination of high valuations, the impact of tariffs on inflation, and the effects on Federal Reserve monetary policy would contribute to declines.