Trump tariffs cause markets to plummet, as international leaders await his next move

World leaders braced themselves to react to U.S. President Donald Trump’s next measures, with the European Union possibly next in line, as global financial markets plummeted Monday over tariffs he placed on Canada, Mexico, and China.

Trump said that although his tariffs on the three biggest trade partners of the United States, which go into effect on Tuesday, may have some immediate negative effects on Americans, “in the long run, the United States has been ripped off by virtually every country in the world.”

Concerns that the tariffs would lead to a trade war that would be detrimental to the economy caused global stock markets and currencies to plummet. At opening, the tech-heavy Nasdaq Composite sank 2.10%, the S&P 500 fell 1.17%, and the Dow Jones Industrial Average declined 0.62%. The declines followed the largest daily losses of the year on a number of Asian and European stock exchanges.

After returning from his Mar-a-Lago resort, Trump said in a speech in Washington on Sunday that the 27-nation European Union may be next in line, although he did not specify when.

“They don’t steal our vehicles or agricultural goods. “We take everything from them, and they take almost nothing,” he said to reporters.

At an unofficial conference in Brussels on Monday, EU leaders urged reason and dialogue while stating that Europe would be ready to retaliate if the US imposed tariffs.

French President Emmanuel Macron stated upon arriving to the negotiations that the union would need to “make itself respected and thus react” if its business interests were assaulted.

German Chancellor Olaf Scholz emphasized that it was preferable for the two parties to reach a trade agreement, but he acknowledged that the EU may retaliate with its own tariffs against the US if required.

“I think that one can be worked out” is how Trump suggested that tariffs might not be imposed on Britain, which exited the EU in 2020.

The EU’s biggest trading and investment partner is the United States. According to 2023 Eurostat statistics, the United States’ goods trade deficit with the EU was 155.8 billion euros ($159.8 billion), while its services trade surplus was 104 billion euros.

Kaja Kallas, the head of EU foreign policy, stated that if a trade war broke out between the US and Europe, “China would be the one laughing on the side.”

DEADLINE FOR TUESDAY

The Republican president’s proposal to slap 10% tariffs on China and 25% duties on Canada and Mexico, which are set to go into effect at 12:01 a.m. ET (0501 GMT) on Tuesday, is expected to hinder global growth and raise costs for Americans, according to economists.

Trump claims they are necessary to boost American industry and stop immigration and drug trafficking.

He stated he had a conversation with Canadian Prime Minister Justin Trudeau and will have another conversation with him at 3:00 p.m. ET (2000 GMT) in a post on this Truth Social platform on Monday.

Trump justified the levies by pointing to drug trafficking and Canadian banking laws.

He has also stated that he intends to talk to the head of Mexico.

Both have declared their own retaliatory tariffs, but Trump talked low hopes that they will reverse their decision.

“They owe us a lot of money, and I’m sure they’re going to pay,” Trump assured reporters.

According to Kevin Hassett, director of the White House National Economic Council, Washington is more pleased with Mexico’s response thus far than Canada’s. Mexican officials were “very, very serious about doing what President Trump said,” he told CNBC, but “Canadians appear to have misunderstood the plain language of the executive order.”

On Monday, worries about the consequences of a trade war were mirrored in the response of the financial markets. Tokyo’s stock fell over 3% on the day, while Australia’s benchmark, which is sometimes used as a stand-in for Chinese markets, down 1.8%. For the Lunar New Year holidays, the market in mainland China was closed.

Europe’s FTSE 100 was down 1.3%, France’s CAC was down 1.9%, and Germany’s DAX index was down 2% at midday.

In contrast to the rising dollar, the Mexican peso, Canadian dollar, and Chinese yuan all fell.

The Canadian dollar reached depths not seen since 2003, the Mexican peso was at a nearly three-year low, and the yuan fell to a record low in offshore trade.

U.S. West Texas crude futures increased more than 3%, with Canada and Mexico being the biggest importers of crude oil into the United States.

Nearly half of all U.S. imports will be subject to Trump’s tariffs, which would force the country to more than double its manufacturing output in order to make up the difference. This is not a doable job in the near future, according to ING analysts.

According to some economists, the tariffs might cause “stagflation”—high inflation, slow growth, and high unemployment—at home and send Canada and Mexico into recession.

According to Deutsche Bank researchers, if Trump imposes 10% tariffs on the group, the GDP in Europe will be negatively impacted by 0.5%.

A NATIONAL EMERGENCY

No information on what Canada, Mexico, and China would have to do to obtain a reprieve was included in a White House fact sheet.

Trump pledged to maintain the penalties until the conclusion of what he called a national emergency involving illegal immigration to the US and the deadly narcotic fentanyl.

Although it kept the door open for negotiations, China referred to fentanyl as America’s problem and stated that it will contest the levies at the World Trade Organization and take other steps.

Claudia Sheinbaum, the president of Mexico, pledged to be resilient and promised to give more information on the retaliatory tariffs she issued over the weekend on Monday. Canada declared that it will contest the levies in court before the appropriate international agencies.

With increased taxes on cars made in Canada and Mexico, automakers would be especially severely impacted. This would put a strain on a large regional supply chain, where parts may transit borders many times before being assembled.

In European trade on Monday, shares of the following companies declined by around 5–6%: Stellantis (STLAM.MI), Daimler Truck (DTGGe.DE), Porsche (P911_p.DE), BMW (BMWG.DE), Volkswagen (VOWG_p.DE), and opens a new tab.

Investment bank analysts at Stifel predicted that tariffs would affect 16 billion euros in Stellantis’ revenues and 8 billion euros in VW’s revenues.