Global financial markets plunged on Monday following the announcement of sweeping tariffs by former U.S. President Donald Trump, raising concerns over a potential trade war and its implications for economic growth. Asian equities fell sharply, while European and U.S. futures pointed to significant losses, and the U.S. dollar surged to record highs against major global currencies.
The offshore yuan sank to an unprecedented low against the dollar, while the greenback climbed to its highest level against the Canadian dollar since 2003 and reached a two-year peak against the Mexican peso. Japan’s Nikkei 225 slumped 2.9%, while Australia’s benchmark ASX 200 often considered “a bellwether for Chinese markets” dropped 1.8%. Hong Kong’s stock market, which resumed trading after the Lunar New Year break, declined 1.1%. Mainland Chinese markets are set to reopen on Wednesday.
European markets were bracing for further declines, with futures on the pan-European STOXX 50 index sliding 2.7%, while U.S. S&P 500 futures fell 2%. The selloff came in response to Trump’s weekend decision to impose tariffs of 25% on Canada and Mexico and a 10% levy on China, measures he justified as necessary to curb migration and combat the flow of fentanyl into the U.S.
The affected countries reacted swiftly, with Canada and Mexico vowing retaliatory tariffs, while China announced plans to challenge the measures at the World Trade Organization. The tariffs, introduced via three executive orders, are set to take effect at 12:01 a.m. ET (0501 GMT) on Tuesday.
Analysts have warned that Trump’s move could mark the beginning of a severe trade conflict with widespread economic repercussions. Paul Ashworth of Capital Economics cautioned that the tariffs could accelerate inflation in the U.S. beyond previous expectations, compounding existing economic pressures.
Greg Daco, chief economist at EY, projected that the measures could shave 1.5 percentage points off U.S. GDP growth this year, push Canada and Mexico into recession, and lead to stagflation “a combination of stagnant growth and rising inflation” in the United States. Meanwhile, strategists at Barclays estimated that the tariffs could slash S&P 500 company earnings by 2.8%, factoring in the expected retaliatory responses.
The currency markets also reflected the turmoil, with the U.S. dollar climbing as much as 0.8% to a record 7.3765 yuan in offshore trading, as onshore Chinese markets remained closed for the holidays. The greenback surged 2.8% to 21.2547 Mexican pesos, reaching its strongest level since March 2022, and gained 1.4% to C$1.4755, a level unseen since 2003.
The euro also faced heavy losses, tumbling 2.3% to $1.0125 ”its lowest level since November 2022” after Trump indicated over the weekend that European tariffs were inevitable. With financial markets reacting decisively, investors now brace for the economic fallout of what could be the most aggressive trade confrontation in years.
