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Stock markets around the world tumbled sharply following U.S. President Donald Trump's declaration that tariffs on Mexico and Canada would proceed as scheduled. 

 

Trump's comments, made on Monday, ignited fears of a trade war across North America, triggering significant volatility in financial markets. U.S. stocks suffered substantial losses in late afternoon trading, while the Mexican peso and Canadian dollar also declined in value.

Trump enforces tariffs amid trade war concerns

The U.S. President announced that a 25 per cent tariff on imports from Canada and Mexico would be implemented starting Tuesday. This move follows the expiration of a 30-day pause that was initially tied to concerns over illegal border crossings and the flow of fentanyl into the United States. 

Additionally, Trump reaffirmed his commitment to increasing tariffs on all Chinese imports, raising the levy from 10 per cent to 20 per cent as a punitive measure against Beijing for its alleged failure to curb fentanyl shipments to the U.S.

Trump's justification for tariffs

"They're going to have to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs," Trump stated during a press briefing at the White House.

He emphasized that there was "no room left" for negotiations to prevent the imposition of these tariffs unless decisive action was taken to restrict fentanyl trafficking into the U.S.

On the issue of tariffs on Chinese imports, Trump justified his decision in an executive order, stating that Beijing "has not taken adequate steps to alleviate the illicit drug crisis."

The Trump administration confirmed that these tariffs would take effect at 12:01 a.m. EST (0501 GMT) on Tuesday, as outlined in Federal Register notices. The U.S. Customs and Border Protection agency will begin enforcing a 25% tariff on Canadian and Mexican imports, while a 10% duty will be imposed on Canadian energy exports.

Trump has consistently argued that tariffs are a crucial mechanism to address trade imbalances and safeguard U.S. manufacturing. He has dismissed warnings that these measures could inflict economic harm on the United States, even in North America, where businesses have flourished under decades of free trade agreements.

Responses from Canada, Mexico, and China

The Mexican government has opted to delay an official response until President Claudia Sheinbaum's regular morning press conference on Tuesday. However, during a public event in Colima on Monday, she appeared to issue a veiled warning to Trump, stating, "Mexico has to be respected."

Sheinbaum has vowed to take retaliatory action, asserting, "We have a plan B, C, D."

Canada has also signaled its readiness to respond. Foreign Minister Melanie Joly told reporters that Ottawa was preparing countermeasures but did not disclose specific details.

Ontario Premier Doug Ford, speaking to NBC, described the U.S. tariffs and potential Canadian retaliation as "an absolute disaster" for both countries. Ford warned that Michigan’s auto plants could be forced to shut down within a week due to disrupted supply chains.

"I don't want to respond, but we will respond like they've never seen before," Ford asserted, adding that he would halt nickel shipments and suspend cross-border electricity transmission from Ontario to the U.S.

Meanwhile, China's state-run Global Times reported that Beijing has already prepared countermeasures, likely targeting U.S. agricultural and food products in response to the tariff hikes.

Market reactions: A global sell-off

Trump’s tariff announcement sent shockwaves through global financial markets. The three major U.S. stock indices plunged sharply:

• The Dow Jones Industrial Average dropped 649.67 points (-1.48%).
• The S&P 500 lost 104.78 points (-1.76%).
• The Nasdaq Composite plummeted 497.09 points (-2.64%).

Additionally, the Magnificent Seven megacaps index fell 3.1 per cent, while a UBS index tracking U.S. stocks sensitive to tariffs declined by 2.9 per cent.

The market turmoil extended beyond the United States, impacting Asian and Australian exchanges. The Nikkei 225 in Tokyo plunged 2.43 per cent, while the Topix index shed 1.48 per cent.

In India, market indicators suggested that the Nifty 50 would open nearly 1% lower as investors braced for the potential ripple effects of escalating geopolitical tensions and retaliatory trade measures.

Auto sector bears the brunt

The automotive industry was among the hardest hit. General Motors, which has significant truck production operations in Mexico, saw its shares decline by 4%, while Ford Motors suffered a 1.7% drop.

Gustavo Flores-Macias, a public policy professor at Cornell University, warned that consumers could face price increases in the coming days.

"The automobile sector, in particular, is likely to see considerable negative consequences, not only because of the disruption of the supply chains that crisscross the three countries in the manufacturing process, but also because of the expected increase in the price of vehicles, which can dampen demand," Flores-Macias explained.

 

Also Read: Indian tariffs WTO compliant; Govt should convey to US: GTRI

Trump’s expanding tariff strategy

Beyond the tariffs on Canada, Mexico, and China, Trump has taken additional measures to fortify his trade policy:

• Tariff Probe on Digital Services Taxes: Trump ordered the revival of an investigation into countries imposing digital services taxes.
• Port Fees for Chinese-Built Ships: The administration proposed new fees of up to $1.5 million per Chinese-built vessel entering a U.S. port.
• Tariff Investigation on Copper Imports: A new probe has been launched into the potential implementation of tariffs on copper imports.

Trump's broader strategy includes the introduction of "reciprocal tariffs"—a policy aimed at mirroring the tariff rates imposed by other nations to counteract trade barriers. This could particularly affect the European Union, which relies heavily on value-added taxes (VAT) levied by its member states.

Economic risks: Inflation and recession concerns

While Trump remains steadfast in his belief that tariffs will strengthen the U.S. economy, some experts caution that the policy could have severe repercussions.

Desmond Lachman, a senior fellow at the conservative American Enterprise Institute, warned that the "tariffs on steroids" approach could sustain inflationary pressures and potentially push the global economy into a recession.

As geopolitical tensions escalate, markets, businesses, and consumers worldwide are bracing for the economic fallout of the latest developments in Trump’s aggressive trade policy.

 

Also Read: Sensex, Nifty sink nearly 2% as US-China trade fears rise