Donald Trump jolts markets with threat of tariffs against Mexico and Canada

Open the White House Watch newsletter for free

Your guide to what the 2024 US election means for Washington and the world

Donald Trump sent shockwaves through financial markets hours after his inauguration when he threatened to hit Mexico and Canada with heavy tariffs.

Speaking in the Oval Office late Monday, Trump said he could impose 25 percent tariffs on both countries as soon as Feb. 1, repeating earlier threats to hit two of the United States’ closest trading partners with tariffs in retaliation for lax border security and fentanyl. of trafficking.

Trump’s renewed warnings sent the Mexican peso down 1.1 percent against the U.S. dollar and the Canadian dollar down 0.9 percent in early trading in Asia on Tuesday.

Both currencies rose sharply on Monday after administration officials made the announcement Trump will refrain from immediately hitting key partners with tariffs and will instead examine the trade situation.

The price swings underscore how investors are bracing for turmoil this week, particularly in currency markets, as Trump follows through on plans to roll back many of Joe Biden’s key policies and a decision to take effect. defense agenda it is weaponizing America’s economic power.

“This kind of volatility is the new normal,” said Eric Winograd, an economist at AllianceBernstein.

A broad sell-off in the greenback also eased after Trump’s comments on tariffs, with the dollar index, the currency’s benchmark against six peers, paring a 1.3 percent drop to just 0.9 percent.

Futures tracking Wall Street’s S&P 500 and Nasdaq 100 indexes pointed to a flat open on Tuesday morning after paring earlier gains.

In a sign of how Trump intends to use trade restrictions as a key diplomatic tool, the new president hit out at the EU on Monday night, threatening the bloc with tariffs unless it buys more US oil.

“They don’t take our cars, they don’t take our farm products, they take almost nothing,” Trump said or tariffs, or they have to buy our oil.”

The euro, which has the largest weighting in the dollar index, fell about 0.5 percent to $1.04 against the dollar in early Asia-Pacific session Tuesday, partially reversing Monday’s 1 percent gain.

Sterling fell 0.3 percent to $1.23 after rising 0.8 percent the previous day.

Traders in Asian markets were relieved after Trump refrained from immediately imposing trade restrictions on China, even as he warned he may do so if Beijing refuses to give the United States partial control over social media app TikTok.

The CSI 300 index of mainland-listed companies was flat in midday trading on Tuesday, while Hong Kong’s Hang Seng rose 0.9 percent.

The offshore renminbi also strengthened to a six-week high of 7.25 to the dollar before easing to 7.28.

“The short version is that we may have avoided the worst-case scenario from a risk-asset perspective. There were no tariffs on China for a day,” said Jason Lui, head of Apac equity and derivatives strategy at BNP Paribas.

“The Chinese Capital Market [already] After the Trump-Xi phone call over the weekend, there was a crowd at the inauguration, so there’s a more measured response.”

Reporting by Adam Samson and Harriet Clarfelt in New York, Aimee Williams in Washington, Arjun Neil Alim in Hong Kong, Leo Lewis in Tokyo and Nick Fields in Sydney.