How President Trump's tariffs are reshaping markets and the global economy
President Trump's substantial new tariffs targeting Mexico, Canada and China have triggered market volatility and raised concerns about inflation and economic growth.
The scale and scope of Trump's tariff measures
President Donald Trump's tariffs imposed on the US’s neighbours on 4 March have significantly impacted financial markets and the global economy.
In early February 2025, President Trump announced substantial tariffs targeting key trading partners, signalling a shift toward protectionist trade policies.
These measures became effective March 4, include a 25% tariff on all imports from Mexico and Canada, with a specific 10% tariff on Canadian energy products, and an increase from 10% to 20% on existing tariffs for Chinese goods.
Trading platform users have observed immediate reactions across multiple asset classes since the announcement.
Market volatility and investor sentiment
Financial markets have experienced increased volatility since the announcement.
Major indices such as the Russell 2000, Nasdaq 100, and S&P 500 have moved into negative territory for the year, with the S&P 500 declining nearly 5% from its February peak.
The Nasdaq 100 has experienced a more pronounced drop, falling more than 8% from its mid-February high.
US indices year-to-date performance
Online trading participants should note that bond yields have declined sharply, and the US dollar has exhibited significant volatility.
Economic impact on American consumers
The implementation of these tariffs is expected to lead to higher prices for a wide range of consumer goods.
The Tax Foundation estimates that the average tariff rate on all US imports would triple from approximately 2.5% to over 7%, reaching a 50-year high.
This increase could cost American consumers between $120 and $225 billion per year, exacerbating inflationary pressures.
Imports from Mexico and Canada constitute a significant portion of the US market for products like fruits, vegetables, automobiles, and energy.
Global trade implications and international response
Economists warn that these tariffs could disrupt established supply chains and trade relationships across North America.
The Peterson Institute for International Economics projects that a sustained 25% tariff could reduce Mexican exports by about 12%, leading to a 4% decrease in its gross domestic product (GDP) for 2025.
Canada faces potential economic contraction and job losses, particularly in the automotive and mineral processing sectors.
CFD trading investors are monitoring potential retaliatory measures from affected trading partners with China already having announced a 15% tariff on US chicken, corn, cotton, and wheat, while soybeans, sorghum, pork, beef, fruits, vegetables, seafood, and dairy will face a 10% tariff. These measures will take effect on 10 March. Furthermore, China's Commerce Ministry added 15 US entities to an export control list and 10 firms to an unreliable entity list.
Monetary policy complications and inflation concerns
The Federal Reserve (Fed) is closely monitoring the tariff situation, as it introduces additional inflationary pressures while potentially slowing economic growth.
This combination of factors complicates monetary policy decisions, raising concerns about potential "stagflation."
Before this week’s tariffs were introduced, Treasury Secretary Scott Bessent last week warned about underlying weaknesses in the US economy, contributing to a complex outlook.
How to navigate markets during trade policy shifts:
- Research sectors with high exposure to international trade
- Consider how tariffs might affect specific companies in your portfolio
- Open a CFD account with us to access trading opportunities
- Monitor developments and market reactions closely
- Consider diversification to help manage potential volatility
Remember that policy announcements often create market volatility, and all trading carries risk. Consider your investment goals and risk tolerance before trading.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets
- Forex
- Shares
- Indices
