Market responds to Trump's initial round of tariffs
Unprecedented Trade Blow: The New U.S. Tariffs
The surprise move by U.S. President Donald Trump over the weekend to levy tariffs on goods from Mexico, Canada, and China has sent shockwaves through the global market, with many investors expecting a negotiation process before any unilateral action from the White House. However, following a "good conversation" with Trump, Mexican President Claudia Sheinbaum announced a pause on the tariffs for a month, with Mexico promising to deploy up to 10,000 soldiers on its northern border to prevent drug trafficking and the unauthorized passage of migrants.
Kim Jong Un, the North Korean leader, called for the replacement of outdated weapons and the modernization of the Army during the same period.
From the Trade Front...
The tariffs, if maintained, would decrease the earnings per share (EPS) of the S&P 500 by 2-3%, according to analysts at Goldman Sachs. Goldman Sachs also expects tariffs to lead to a stronger dollar, with the impact being smaller if the tariffs are perceived as a prelude to a negotiation, but escalating if investors fear an escalation.
Matthew Ryan, Head of Market Strategy at Ebury, criticized the "wild tariffs," emphasizing that the damage lies not in the size of the tariffs but in their speed and the swift responses from Canada and Mexican authorities. Ryan warned of a full-blown trade war unfolding, potentially harming global growth in 2025, benefiting the dollar, and creating an unfavorable environment for risk assets.
On the other hand, Tom Van der Heyden, a professor at OBS Business School, highlighted that the Canadian dollar and the Mexican peso have suffered in the markets due to the anticipated damage to the businesses of partners in the USMCA/T-MEC treaty, which has effectively been sidelined.
Analysts from ING Research pointed out that the U.S. imports approximately half of its goods from the three countries targeted by the tariffs. Such disruptions could significantly impact the economies of the U.S., Canada, and Mexico, particularly in industries such as automotive, manufacturing, and agriculture. Canada and Mexico have declared their intention to retaliate against the tariffs, while China has vowed to challenge them at the WTO.
And from the Political Front...
Gilles Moëc, the chief economist at AXA Investment Managers, noted Trump's choice of victims for the opening salvo in the "trade war 2.0." By targeting Canada and Mexico, Trump has affected countries with closely interconnected production, which will have a significant impact on the U.S. economy. Möec views Trump's aim as sending a strong message that he is determined to use tariffs as a primary tool in foreign policy, with no one being immune from the U.S.' commercial interests.
According to estimates by Oxford Economics, the announced tariffs will reduce U.S. growth by 0.7 percentage points in 2025. The unemployment rate in the U.S. is expected to rise to 4.5% this year, while inflation will increase due to the sudden imposition of tariffs on major trading partners, affecting consumer spending. The Fed is expected to exercise caution in continuing the easing cycle, remaining on hold for longer than anticipated.
Related Topics:
- Donald Trump
- Claudia Sheinbaum
- Goldman Sachs
- Ebury
- United States
- Mexico
- Economy
- Tariffs
- Trade War
- USMCA/T-MEC
- EUROPAPRESS
Enrichment Data:
The tariffs imposed by the U.S. on imports from Mexico, Canada, and China have significant implications for both the U.S. stock market and global economic growth in 2025. As of early 2025, the U.S. has implemented tariffs on Chinese goods, commencing with an additional 10% tariff, as well as reimposing tariffs on goods from Canada and Mexico. The tariffs are expected to result in increased costs for companies importing goods, potentially decreasing their profit margins and affecting their earnings per share (EPS). Over time, companies may adapt by renegotiating contracts or finding alternative suppliers, although such adjustments can be time-consuming. If trade tensions escalate and last for an extended period, the tariffs could result in sustained volatility and pressure on the S&P 500. Additionally, the tariffs are likely to disrupt global supply chains, slow economic growth, and lead to inflation.
- The tariffs announced by the U.S. President Donald Trump on goods from Mexico, Canada, and China have raised concerns in the world of finance, with Goldman Sachs analysts predicting a decrease in the S&P 500's earnings per share (EPS) by 2-3% if the tariffs are maintained.
- In the realm of politics and general news, these tariffs have been criticized by Matthew Ryan, Head of Market Strategy at Ebury, who emphasizes that their speed and swift responses from Canada and Mexican authorities could lead to a full-blown trade war, potentially harming global growth in 2025, benefiting the dollar, and creating an unfavorable environment for risk assets.
