Trade War Fears Spark Market Slide in Asia
In a dramatic turn of events, Asian shares took a nosedive on Monday morning as US President Donald Trump made good on his threat to impose tariffs on Canada, Mexico, and China.
Investors are now on high alert, preparing for a potential trade war that could have detrimental effects on major companies’ earnings and global economic growth.
Canada and Mexico have wasted no time in retaliating with their own tariffs, while China has vowed to fight back with “corresponding countermeasures” and challenge Trump’s decision at the World Trade Organization.
Trump has justified the tariffs as a necessary measure to curb the influx of illegal drugs and immigration into the US.
The impact was felt across Asian markets, with Hong Kong’s Hang Seng Index dropping by 1.3%, Japan’s Nikkei 225 plummeting by 2.4%, South Korea’s Kospi tumbling by 3%, and Australia’s ASX 200 falling by 1.8%.
Meanwhile, markets in mainland China remained closed for the Lunar New Year holiday.
Adding to the turmoil, the US dollar surged to a new high against China’s yuan, while the Canadian dollar hit its lowest level since 2003.
“The fear of a prolonged trade dispute between the world’s top two economies is prompting investors to play it safe today,” said Tim Waterer, chief market analyst at financial services firm KCM Trade.
“Investors are also concerned about which countries could be next on Trump’s tariff hit list.”
Trump’s recent tariff announcements specifically target the US’s top three trading partners, with the president hinting that more countries could face similar measures in the future.
Not stopping there, Trump has threatened to impose tariffs on the European Union in the near future.
Chief investment strategist at investment bank Saxo, Charu Chanana, cautioned that while tariffs may offer short-term benefits to the US economy, they pose significant risks in the long run.
“Continued use of tariffs could lead other countries to reduce their dependence on the US, ultimately weakening the dollar’s global standing,” she warned.
Trump is scheduled to discuss the tariffs with Canada and Mexico’s leaders on Monday, just hours before the tariffs are set to take effect at midnight on Tuesday.
Both countries are facing a hefty 25% tariff on their exports to the US, while Chinese goods will be slapped with an additional 10% tax. — BBC
