Unlock the White House Watch newsletter for free
Your guide to what the 2024 US election means for Washington and the world
Donald Trump caused a storm in financial markets hours after his inauguration by threatening to hit Mexico and Canada with heavy tariffs.
Speaking in the Oval Office late Monday, Trump said he could impose 25 percent tariffs on both countries as early as Feb. 1, repeating earlier threats to hit two of the U.S.’s closest trading partners with tariffs in retaliation for lax border security and the fentanyl trade. to people.
Trump’s renewed warnings sent the Mexican peso down 1.1 percent against the U.S. dollar and the Canadian dollar down 0.9 percent as trading opened in the Asia-Pacific region on Tuesday.
Both currencies rallied sharply on Monday after administration officials said Trump it would refrain from immediately slapping tariffs on key partners and instead study the trade situation.
Price swings underscore how investors are bracing for upheaval this week, particularly in currency markets, as Trump outlines plans to roll back many of Joe Biden’s protectionist policies and enact protectionist agenda which puts arms in America’s economic weight.
“This kind of volatility is the new normal,” said Eric Winograd, an economist at AllianceBernstein. “Policy under the Trump administration is likely to be less predictable and less process-oriented than what we’re used to under the Biden administration.”
The dollar’s broad sell-off also eased after Trump’s comments on tariffs, with the dollar index, a measure of the currency against six rival currencies, paring a drop of as much as 1.3 percent to just 0.7 percent. Futures tracking Wall Street’s S&P 500 index also shed as much as 0.5 percent.
In a sign that Trump intends to use trade restrictions as a key diplomatic tool, the new president lashed out at the EU on Monday night, threatening the bloc with tariffs if it does not buy more US oil.
“They don’t take our cars, they don’t take our agricultural products, they don’t take almost anything,” Trump said. “And yet, we take their cars and their agricultural products, we take a lot from them. So we will solve it either with customs or they will have to buy our oil.”
The euro, which has the largest weighting in the dollar index, fell about 0.5 percent against the greenback to $1.04 in early Tuesday’s Asia-Pacific session, partially reversing Monday’s 1 percent gain. Sterling fell 0.4 percent to $1.23 after rising 0.8 percent the previous day.
In Asian markets, traders were relieved after Trump refrained from immediately enacting trade restrictions against China, although he warned he may do so if Beijing refuses to hand over partial control of social media app TikTok to the US.
The index of listed companies CSI 300 rose by 0.5 percent, while Hong Kong’s Hang Seng rose by 1 percent. The offshore renminbi also strengthened to a six-week high of 7.25 to the dollar.
“The short version is that we may have avoided the worst possible scenario from a risk and asset perspective. There were no one-day tariffs on China,” said Jason Lui, head of Apac equities and derivatives strategy at BNP Paribas.
“The Chinese Capital Market [already] they gathered for the inauguration after the phone call between Trump and Xi over the weekend, so there is a more measured reaction.”
Reporting by Adam Samson, Aime Williams, Harriet Clarfelt, Arjun Neil Alim, Leo Lewis and Nic Fildes
