Global stock markets have seen fluctuations this week following announcements from US President Donald Trump, who imposed significant tariffs on goods imported from Canada, Mexico, and China. Effective immediately, the default stance of imposing 25% tariffs on goods from Canada and Mexico, coupled with new 10% tariffs on imports from China, has sent shivers through international financial markets. Investors reacted quickly to these developments, leading to declines across major stock exchanges.
On Monday, following the tariffs announcement over the weekend, US stocks opened lower. The market fell sharply initially as the new levies raised concerns over trade relations with key partners. According to Morningstar chief multi-asset strategist Dominic Pappalardo, "Nearly all equity markets moved lower today as a traditional risk-off trade seems to be developing." The S&P/TSX60 index in Canada saw losses of 1.20%, with the Morningstar US Market Index dropping by 0.78%.
Particularly hard-hit were automaker stocks, with Ford seeing its shares slip by 0.65% and Tesla down 4.80%. The Morningstar Consumer Cyclical Index also decreased, shedding 2.9%. These losses reflect broader concerns about how automakers will navigate the new tariff terrain, especially considering many have extensive manufacturing relationships and dependencies on Mexico and Canada.
Despite the grim outlook, the markets managed to pare some losses when news broke of negotiations between the United States and Mexico to suspend the tariffs for one month. This development helped ease investor fears temporarily. Still, uncertainty looms large, as negotiations with Canada appear similarly beneficial but remain fluid.
Streaming across the oceans, Europe’s markets experienced their share of volatility as well. The Stoxx Europe 600 index witnessed declines led by automakers, with significant stocks like Stellantis and Volkswagen experiencing drops of 4.5% and 3.5%, respectively. Lower stocks within the automotive sector are largely attributed to their close ties to the assembly and production facilities located within Mexico, which are under direct threat from newly imposed tariffs.
There are concerns, too, about the future. Morningstar automotive analyst Rella Suskin remarked on the adaptations automakers have made, noting, "Most auto manufacturers have been diversifying their manufacturing base for many years now to match production to the region..." This might mitigate some losses, provided tariffs don't greatly disrupt domestic and international supply chains. Still, it’s not lost on economists and investors alike; the imposition of tariffs risks leading to retaliatory measures from affected countries, potentially igniting what many fear could evolve quickly from trade tensions to outright trade wars.
A pivotal component of the market's response has been the flight to quality and safety, as US Treasury bonds rallied with yields moving lower—a classic investor maneuver during times of uncertainty. This alone indicates growing concerns among market players, who view bonds as far safer than equities under the current conditions.
Digital assets were not immune to this brewing storm. Bitcoin, for example, dropped to $92,800 at one point—a three-week low before climbing back to around $96,546 later. The CoinDesk 20 index, which monitors the top 20 cryptocurrencies, witnessed about 20% decline over two days, reflecting the broader risks associated with risks assets. Smaller cryptocurrencies like Ethereum also saw significant falls.
The ripple effects of Trump’s tariff announcements extended beyond just stocks. The US dollar surged against several currencies, reflecting the strengthening of the dollar as investors sought stability. The dollar moved from MXN 20.68 to MXN 21.09 against the Mexican peso and from CAD 1.45 to CAD 1.47 against the Canadian dollar.
Unquestionably, the stakes are high with these new policy shifts. Trump reaffirmed his intentions to continue targeting the European Union, signaling potential for future tariffs as well, stating bluntly over the weekend, "tariffs on the bloc will definitely happen." This ambition only intensifies the anxiousness among global investors, as the precarious trade relationships could lead to heightened volatility, longer-term consequences for economic relations, and broader recessionary fears.
The economic fallout from these tariffs could extend far beyond just lost sales or sluggish market days. With uncertainties clouding the horizon, questions abound—will there be retaliation from the affected countries, or could swift negotiations lead to the reduction or removal of these tariffs, cushioning the economic blow? Only time will tell. Meanwhile, investors remain cautious, bracing for what may come next amid prevailing uncertainty and shifting alliances on the global trade front.