Get complimentary access to the White House Watch newsletter! It’s your ultimate guide to understanding the impact of the 2024 US election on Washington and the globe.
On an eventful Monday morning, Donald Trump’s announcement of new tariffs sent ripples through the financial markets. The Canadian dollar, Mexican peso, and US stock futures experienced declines as investors scrambled to assess the potential impact on America’s key trading partners.
In early Asia-Pacific trading, the Canadian dollar faced considerable pressure, plummeting 1.4% to reach C$1.473 against the US dollar—its weakest point since 2003. Similarly, Mexico’s peso dropped over 2%, landing at 21.15 per dollar, while the euro saw a 1% decrease.
US stock futures took a hit as well, with S&P 500 contracts falling 1.8% and Nasdaq 100 futures dipping 2.6%. It’s worth noting that trading volumes are typically low at the start of the session, which can lead to exaggerated price fluctuations.
Over in Asia, Japan’s stock markets weren’t immune. The Nikkei 225, heavily populated by exporters, fell 2.3%, and the broader Topix index followed with a 1.8% decline. The yen weakened slightly by 0.2% against the dollar, trading at ¥155.5.
In South Korea, the Kospi index lost 2.2%, while the won weakened 0.9% against the dollar, sitting at Won1,468.8. Meanwhile, Australia’s S&P/ASX 200 index saw a decrease of up to 2%. China’s offshore renminbi, which moves freely, also dropped, down 0.5% to Rmb7.3571 per dollar on Monday morning.
These significant declines followed Trump’s weekend announcement of 25% tariffs on all Mexican and Canadian imports, a slightly reduced 10% on Canadian energy, and fresh 10% tariffs on Chinese imports. He also recently threatened similar measures against the EU.
Economists have voiced concerns that these tariffs could hasten inflation in the US, echoing the market reactions seen when Trump was elected in November, which led to a rise in Treasury yields and strengthened the dollar.
Eric Winograd, chief economist at AllianceBernstein, commented, “The most obvious outcome is a stronger dollar. If you’re betting on the effects of the trade war, the dollar is your safest bet.” He added that currencies hit by these tariffs are likely to suffer the most, and there’s a strong argument that stock markets might also take a hit.
The reaction wasn’t limited to currencies; oil prices in early Asian trading reflected the turmoil, as international benchmark Brent crude rose 1% to $76.46 a barrel.
George Saravelos from Deutsche Bank described the tariff announcement as one of the most aggressive forms of protectionism imaginable. He emphasized the need for markets to drastically revise their expectations regarding trade war risks.
Lately, the Mexican peso has been swaying significantly due to traders analyzing the Trump administration’s announcements for clues on the scale and swift implementation of new tariffs.
Gabriela Siller, chief economist at Mexico’s Banco Base, suggested that if the tariffs persisted for several months, the peso could hit historic lows against the dollar. She warned that this could lead to a fundamental shift in Mexico’s economy, potentially triggering a severe recession that might take years to recover from.
In contrast, analysts at BBVA Mexico suggested it’s unlikely for the tariffs to remain long-term. However, they warned that a prolonged imposition could severely dent Mexico’s investment climate and its competitive edge.
