Trump's new tariff announcement sends shockwaves through global markets

​​​Details of the new tariff measures

The new tariffs, set to take effect on 4 February, impose a 25% levy on Mexican and most Canadian goods, with a 10% tariff on Canadian energy products. Chinese imports will face a 10% tariff, marking a significant escalation in trade tensions. Wall Street analysts, who had previously anticipated a more selective approach to trade policy, have been forced to revise their outlooks substantially. The comprehensive nature of these tariffs suggests a more aggressive stance than markets had priced in.

Trump's decision to invoke emergency powers under IEEPA (International Emergency Economic Powers Act) has raised legal questions. However, the administration appears to have multiple legal avenues to enforce these measures.

The timing and scope of these tariffs represent a marked shift from previous trade policies, with analysts noting this could reshape global trade dynamics for years to come.

Economic implications and market response

Trading platforms are seeing increased volatility as markets digest the implications.

• Goldman Sachs projects these measures could increase inflation by 0.7% while reducing gross domestic product (GDP) growth by 0.4%
• Morgan Stanley's analysis suggests an even more severe impact, with potential US economic growth reduction of up to 1.1%. Mexico faces the prospect of recession, while Canada's economic outlook has deteriorated significantly
• Deutsche Bank analysts draw parallels with Brexit's impact on the UK, suggesting that both Canada and Mexico could face even more severe economic consequences. This assessment has triggered increased activity in forex trading
• The US dollar has strengthened considerably, though this strength could be tested as markets evaluate the longer-term implications for US economic growth and trade relationships.

International response and retaliation risks

Canada has already announced retaliatory measures, implementing 25% counter-tariffs on US goods. This swift response signals the potential for an escalating cycle of trade restrictions.

Mexico and China have both indicated their readiness to respond with countermeasures, raising concerns about a broader trade war. These developments have particularly impacted commodity trading.

Market analysts are particularly concerned about the impact on existing trade agreements and relationships. The measures could potentially undermine the recently negotiated USMCA agreement. The potential for retaliatory measures creates additional uncertainty for businesses and investors, particularly those with exposure to North American supply chains.

Market implications for traders and investors

Equity futures suggest continued market weakness, with particular pressure on sectors heavily dependent on North American trade. The materials and automotive sectors appear especially vulnerable. The heightened uncertainty has led to increased demand for safe-haven assets, with gold and sovereign bonds seeing significant inflows.

Analysts warn that markets must now factor in a higher tariff risk premium, as Trump's willingness to implement aggressive trade measures becomes clear.