Asian markets fell sharply on Monday morning after U.S. President Donald Trump implemented tariffs on Canada, Mexico, and China, fulfilling his earlier threats.
Investors are bracing for volatility amid concerns that these tariffs could impact corporate earnings and hinder global economic growth.
Canada and Mexico announced plans for retaliatory tariffs, while China pledged “corresponding countermeasures” and vowed to challenge the tariffs at the World Trade Organization.
Trump defended the tariffs, stating they were necessary to curb illegal drug trafficking and immigration into the U.S.
The tariffs include a 25% levy on exports from Canada and Mexico to the U.S., while Chinese goods face an additional 10% tariff on top of existing duties.
In response to the news, Hong Kong’s Hang Seng Index dropped 0.7%, Japan’s Nikkei 225 declined 2.8%, South Korea’s Kospi fell 3%, and Australia’s ASX 200 slipped 1.9%. Markets in mainland China remained closed for the Lunar New Year holiday.
The U.S. dollar surged to a record high against China’s yuan, while the Canadian dollar sank to its lowest level since 2003.
“The prospect of having a long and protracted trade spat between the world’s two biggest economies is causing investors to take risk off the table today,” said Tim Waterer, chief market analyst at financial services firm KCM Trade.
“The other worry for investors is which countries may be on Trump’s tariff hit list next.”
The tariffs announced by the Trump administration over the weekend target the United States’ three largest trading partners and the US president has threatened he might not stop there.
Trump has also vowed to impose tariffs on the European Union “pretty soon”.
Chief investment strategist at investment bank Saxo, Charu Chanana, warned that while tariffs could be beneficial for the US economy in the short term, in the long run they pose significant risks.
“Repeated use of tariffs would incentivise other countries to reduce reliance on the US, weakening the dollar’s global role,” she added.
Trump has said he will speak to Canada and Mexico’s leaders on Monday about the tariffs which are due to come into effect at midnight on Tuesday.