The global market woke up to a trade war as US President Donald Trump struck the first blow against Canada and Mexico, imposing a 25% tariff on their imports. China also faced Trump’s economic offensive with an additional 10% tax on its goods. But what led to such a drastic move?
Trump claims he is taking action against illegal immigration and drug trafficking—two key issues he vowed to tackle during his election campaign. However, Canada, Mexico, and China have called the tariffs unfair, setting the stage for a major economic standoff.
In retaliation, Canada has imposed a 25% tariff on $106 billion worth of U.S. goods, while Mexico is expected to follow suit. The trade war’s impact has already rippled across financial markets, dragging down equities and creating instability in multiple asset classes.
Stock markets plunged globally, with major indices reflecting investor fears. Google Finance data reveals that the Dow Jones Industrial Average (DJIA) currently sits at 44,544.66, down 337.47 points, while the S&P 500 dropped by 0.50%.
Asia’s markets opened in negative territory, reacting swiftly to trade war concerns. Japan’s Nikkei 225 fell 2.66%, South Korea’s Kospi declined 2.52%, while India’s Nifty 50 and Sensex slid by 0.56% and 0.5%, respectively.
Market Hit Hard by Sell-Offs
The crypto market also felt the heat, with traders reacting to macroeconomic fears and widespread sell-offs. According to CoinMarketCap, major altcoins saw double-digit losses, with Filecoin, Celestia, Cardano, Cosmos, and AVAX among the hardest hit.
According to QCP Capital, crypto suffered nearly $2 billion in liquidations, reinforcing its role as a risk proxy before U.S. markets opened. Ethereum (ETH) was hit harder than Bitcoin (BTC), a sign that traders rushed to offload riskier assets amid growing uncertainties.
Meanwhile, the bond market also reflected shifting investor sentiment. QCP Capital noted that US Treasury yields bear-flattened, with the 2-year yield rising while 10-year yields fell. This pattern suggests that short-term inflation fears are mounting, while long-term risks associated with the trade war are weighing on global growth prospects.
The gold market also experienced a shake-up, with QCP Capital pointing to a widening basis between New York and London gold prices. This suggests not only an unwinding of popular EFP (Exchange for Physical) carry trades but also potential logistical challenges in moving gold between vaults, signaling deeper uncertainty over how far tariffs may extend.
The turmoil didn’t stop with equities and crypto. Oil prices spiked, reflecting concerns that prolonged trade tensions could disrupt global supply chains. Investors are now bracing for continued volatility as Trump prepares to negotiate with Canada and Mexico tonight, while also threatening tariffs on the European Union.
With economic tensions at an all-time high, markets are likely to see more wild swings in the coming days, as the impact of Trump's tariffs reverberates across industries and economies worldwide.