The new US president’s announcement that the country’s closest neighbours could be hit with 25% levies as soon as February 1 also jolted currency markets, with the Mexican peso and Canadian dollar tumbling.
His comments came as he signed a slew of executive orders that indicated he could resume his hardball approach to global diplomacy and trade, including pulling out of the Paris climate accord and the World Health Organization.
He also gave social media app TikTok 75 days to find a buyer for its US business, after it missed a deadline Saturday ordering its Chinese owners ByteDance to sell its US subsidiary to non-Chinese buyers or be banned.
“We’re thinking in terms of 25% on Mexico and Canada because they’re allowing vast numbers of people — Canada’s a very bad abuser also – vast numbers of people to come in, and fentanyl to come in,” he said in the Oval Office.
He had earlier said he would “immediately begin the overhaul of our trade system to protect American workers and families”.
“Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens,” he announced in his inaugural address.
Markets in Asia and Europe had enjoyed a healthy run-up yesterday – with Frankfurt hitting another record – on hopes Trump would take a more gradual approach to trade policy, after news of positive talks with Chinese President Xi Jinping added to the optimism.
That lack of mention of China fanned hopes the economic superpowers will not embark on another trade war.
Beijing said today it hoped the two sides could cooperate on the issue, with foreign ministry spokesman Guo Jiakun saying it is “willing to strengthen dialogue and communication with the US (and) properly manage differences”.
However, Trump’s warning to Ottawa and Mexico City caused some nervousness on trading floors.
Shanghai, Singapore, Seoul, Wellington, Manila and Mumbai fell while Tokyo, Sydney, Taipei, Bangkok and Jakarta rose.
Hong Kong advanced, with embattled Chinese developer Country Garden soaring as much as 30% at one point as trading in the firm resumed after a nine-month suspension. It ended 17.5% higher.
London edged up at the open but Frankfurt and Paris slipped.
Dealing in the firm was paused in April 2024 after it postponed the release of its 2023 results.
It published them last week, revealing that it made a loss of US$24.3 billion – after a US$825 million loss the year before.
The dollar, which had weakened across the board Monday, bounced against its major peers, but its biggest gains were against the Mexican peso and Canadian dollar, with the latter at its weakest since the start of 2020 during the pandemic.
“The new administration seems aware of the potential downsides of tariffs,” said Tai Hui, Asia Pacific chief market strategist at JP Morgan Asset Management.
“China, Mexico, and Canada remain in the spotlight for possible tariff increases.
“Investors may need to prepare for some whipsawing of policy announcements in the weeks ahead as the new administration settles on precise policy direction,” Hui said.
Wall Street was shut yesterday for the Martin Luther King holiday, but US stock futures were solidly higher.