Tariffs Take Effect, Markets React With Mixed Signals

Global financial markets showed mixed reactions as President Donald Trump’s tariffs on key trading partners, including Canada, Mexico, and China, came into effect. While the immediate impact appeared subdued, US stocks had already experienced significant declines leading up to the deadline, and oil prices continued their downward trend, extending losses.

The tariffs, which apply to around $1.5 trillion in annual imports from Canada, Mexico, and China, have sparked concerns about escalating trade tensions and the potential for a full-blown trade war. Despite these worries, investors remained relatively calm on the day of implementation, with Chinese stocks even rising intraday. However, the uncertainty surrounding global trade policy and its potential impact on the US economy is beginning to weigh on markets.

Ken Cheung, chief Asia FX strategist at Mizuho Bank Ltd., noted, “Now the market may be recognizing the limitation of US tariffs hike in the full-blown trade war when the US economy shows sign of weakness.”

As the tariffs took effect at midnight New York time, Canada quickly retaliated with its own set of levies, and China imposed tariffs of up to 15% on certain US exports. These measures have led to a flight to safer assets, with investors expressing growing concern over the rising geopolitical tensions and the risk of further tit-for-tat tariffs.

Despite the retaliatory actions, Billy Leung, investment strategist at Global X ETFs, pointed out that China’s response, particularly on US agricultural goods, seemed less aggressive, suggesting Beijing may be leaving room for negotiation. “That’s probably why Chinese stocks are rebounding instead of selling off harder,” Leung added.

Trump’s imposition of tariffs on Canada and Mexico represents a significant escalation in his broader strategy to overhaul global trade. The duties are expected to impact a wide range of goods, with agricultural products in particular facing new trade barriers starting on April 2. However, Trump did not provide specifics on which items would be affected, leaving investors uncertain.

The financial markets have already shown signs of stress. The S&P 500 fell 1.8% on Monday, marking its largest decline in recent months. The Bloomberg Dollar Spot Index remained stable, while the Canadian dollar and Mexican peso both slipped. Emerging market currencies, particularly in Asia, have faced increasing pressure as a result of the new tariffs on China.

Prashant Newnaha, senior rates strategist at TD Securities in Singapore, emphasized that “markets were hoping there was potential for more wiggle room, more negotiation or the possibility of an extension, but those hopes have been dashed.” With US growth showing signs of weakness, there is concern that the tariffs may exacerbate an already fragile economic recovery.

In Asia, attention is shifting to China’s National People’s Congress, which convenes in Beijing on Wednesday. Investors are hoping for signals on economic stimulus measures, as China grapples with deflationary pressures and a weakening economy amidst the ongoing trade conflict. Reports indicate that China may retaliate further, targeting US agricultural and food products.

Vikas Pershad, an Asian equities portfolio manager at M&G Investments, remains optimistic about the region’s prospects, noting that there are still opportunities in China, Japan, and India for medium-to-long-term investors.

Meanwhile, US economic data continues to disappoint, with weaker-than-expected manufacturing reports, rising unemployment claims, and a drop in personal spending. Goldman Sachs CEO David Solomon downplayed recession fears, suggesting there is a “very small” chance the US economy will slip into a recession despite the ongoing global trade uncertainties.

In the digital asset market, cryptocurrencies remained volatile, with Bitcoin and other major coins experiencing significant declines. Bitcoin fell for a second consecutive day, dropping over 9% on Monday, while the MVIS CryptoCompare Digital Assets 100 Index dropped by as much as 9.8%.

Geopolitical tensions also remained high, with Trump’s decision to pause all military aid to Ukraine adding to market uncertainty. In commodities, oil prices continued to slide, with West Texas Intermediate crude falling 0.6% to $67.94 per barrel. Gold, after gaining the previous day, remained relatively steady.