Trump's new tariff plans are impacting the global markets, in two posts on Truth Social on Monday evening, he announced Trump's new tariff plans for a 25% tariff on all products entering the United States from Canada and Mexico, along with an additional 10% tariff on imports from China.
"On January 20th, as one of my first Executive Orders, I will sign the necessary documents to impose a 25% tariff on ALL products coming into the United States from Mexico and Canada, addressing our ridiculous open borders," Trump stated.
According to the International Trade Administration, the top three suppliers of U.S. goods imports in 2023 were Mexico, totaling $475 billion, China at $427 billion, and Canada at $419 billion.
While the U.S. stock market mostly traded higher on Tuesday after a brief sell-off on Monday evening, other global markets were more significantly impacted by the news of Trump's tariff plans.
The Canadian dollar fell by as much as 1.4% against the U.S. dollar, while the Mexican peso dropped by up to 2.1% relative to the U.S. currency.
Concerns over the potential tariffs have triggered a rally in the dollar since the election, as investors anticipate that the Federal Reserve may need to maintain high interest rates to mitigate the inflationary impact of the tariffs.
Higher US rates lead to a stronger greenback as foreign investors buy up dollars to invest in relatively higher-yielding assets like Treasury bonds and other debt securities.
The US Dollar Index, which measures the dollar against a basket of major currencies, was up slightly on Tuesday morning, to about 106.97.
While US stock market was somewhat muted in their reaction, global stocks were rattled. Mexico's and Canada's stock markets experienced declines on Tuesday. The iShares MSCI Mexico ETF dropped by as much as 3%, while the iShares MSCI Canada ETF fell approximately 1%.
In Europe, the Stoxx 600 index decreased by 0.5%. Japan's benchmark Nikkei 225 was down nearly 1%, and South Korea's KOSPI declined by 0.6%.
China's stock market, however, was only down about 0.5%. While Trump's tariff plans for goods from Mexico and Canada surprised investors, analysts noted that the market has largely already factored in the potential tariffs on China. Trump's post on Truth Social was also somewhat ambiguous, mentioning a 10% tariff "above any additional tariffs." During his campaign, Trump had proposed a 60% tariff on Chinese goods.
Canadian oil prices suffered due to the news.
Oil ranks among Canada's top exports to the U.S., which imported $97.1 billion worth of crude from Canada in 2023. Canadian heavy crude from the oil sands is a key supply for Gulf Coast refineries, particularly as U.S. sanctions limit imports from other nations.
On Tuesday, Western Canadian Select crude fell by nearly 4%, reaching $57.04 per barrel.
Capital Economics suggested that Trump's new tariff plans threat could merely serve as a negotiating tactic.
In a note on Tuesday, economist Stephen Brown stated that Trump's new tariff plans appear "designed to extract concessions on drug trafficking and illegal border crossings," indicating that the targeted countries might be able to avert them.
Brown noted, "The implication is that these countries could prevent the tariffs by presenting credible plans to combat drug supply or enhance border security, similar to how Mexico successfully addressed a comparable threat from Trump in 2019."
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