Mexico and Canada are on hold, while tariffs against China take effect today. How are global markets responding?
Starting February 4, new 10% tariffs on all imports from China, imposed by President Donald Trump, took effect in the USA. Concurrently, Beijing introduced a 10% tariff on imports of oil and agricultural machinery, as well as a 15% tariff on coal and liquefied natural gas (LNG) shipments from the USA, reports UNN.
China has initiated an antitrust investigation against Google and has added American companies PVH Corp (owner of the Calvin Klein brand) and biotechnology firm Illumina to its list of potential sanctions.
Moreover, Chinese authorities announced export controls on several metals, particularly tungsten, which is critically important for the production of electronics, military equipment, and solar panels.
The aforementioned tariffs will come into force on February 10, providing Washington and Beijing with a few more days for possible negotiations.
Why is China acting cautiously?
The total volume of Chinese tariffs will affect about $20 billion of American exports. In comparison, the new US tariffs target imports of Chinese goods worth $450 billion. Analysts note that such actions from Beijing are more of a signal to the US rather than an attempt to inflict serious damage on American exports.
“These measures are relatively restrained, especially compared to the actions of the US, and they are designed to send a message to the US,” commented Julian Evans-Pritchard, head of the China economics department at the analytical firm Capital Economics.
US neighbors receive a reprieve
While tariffs on Chinese imports have already been implemented, tariffs on goods from Mexico and Canada have been suspended.
Recently, Trump agreed to a 30-day pause on 25% tariffs on imports from these countries. This decision was made after concessions from Ottawa and Mexico regarding border control and crime fighting. Canada promised to enhance border control with the USA, utilizing new technologies and additional personnel to combat illegal immigration, fentanyl smuggling, and money laundering.
In turn, Mexico agreed to deploy 10,000 National Guardsmen to its northern border to curb the flow of illegal migrants and drugs.
Trump called these concessions a "significant achievement" and stated that his main priority remains the safety of Americans.
What’s next?
A conversation between Trump and Chinese leader Xi Jinping is expected soon. Despite the measures taken, Beijing leaves room for negotiations. At the same time, Trump has already stated that he is prepared to increase tariffs if China does not stop the flow of fentanyl into the USA.
0Meanwhile, Europe is also preparing for potential tariff wars. The US President hinted that the EU might become his next target for economic pressure, although he has yet to specify details.
European Commission President Ursula von der Leyen stated after an informal summit of EU leaders in Brussels that the EU will give a firm response if the US imposes tariffs on European goods.
1How markets are reacting to Trump's new tariffs
The Canadian dollar and Mexican peso sharply lost value as investors assess the implications for the USA's main trading partners.
The Canadian currency came under pressure, dropping 1.4%, marking its lowest level since 2003.
The Mexican peso depreciated by more than 2%, while the euro also fell by 1%.
2On Asian exchanges, shares of major automobile, electronics, and semiconductor manufacturers plummeted.
Japanese companies Toyota, Honda, and Nissan lost over 5% due to risks to production in Mexico. South Korean automaker Kia fell by 5%, while Chinese firms XPeng and Li Auto, which are expanding their presence in the USA, dropped more than 6% in Hong Kong.
The new tariffs also hit Chinese e-commerce platforms, as the Trump administration canceled tax breaks for packages valued at up to $800.
This led to a decline in the stocks of companies producing small durable goods, particularly sportswear manufacturer Li Ning (-7%) and home appliance company Haier Smart Home (-7%).
Shares of Asian chip manufacturers also suffered losses. Major chip exporters, such as Taiwan Semiconductor Manufacturing Co. and Samsung Electronics, faced pressure following Trump's announcement of a potential import tax on semiconductors.
In Japan, shares of semiconductor equipment manufacturers Tokyo Electron, Advantest, and Disco fell by at least 2%.
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Some Asian companies may benefit from the new tariffs. Specifically, oil refineries like S-Oil could potentially profit from rising oil prices from Canada and Mexico, giving them an edge over American competitors.
Trump's trade policy has also adversely affected Taiwanese and Indian companies with production in Mexico. Shares of Quanta Computer, which manufactures AI equipment, fell by nearly 10%. Stocks of LG Electronics, as well as Indian pharmaceutical companies and auto component suppliers like Samvardhana Motherson International and Tata Motors, also faced pressure.
Amid these changes, investors expect inflation in the USA to rise.