As Donald Trump took office, he warned that he could impose harsh tariffs on Canada and Mexico next month, but he seemed to postpone taking action against China for the time being. This caused significant volatility in Asian markets on Tuesday.
Currency markets were also rocked by the incoming US president’s declaration that the closest neighbors of the US would face 25 percent taxes as early as February 1. This caused the Canadian dollar and Mexican peso to plummet.
His remarks coincided with the signing of numerous executive orders that suggested he could return to his tough stance on international trade and diplomacy, including withdrawing from the World Health Organization and the Paris Climate Accord.
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 percent 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.
Asian and European markets saw a healthy surge Monday, with Frankfurt setting yet another record, on expectations that Trump will adopt a more measured approach to trade policy. The confidence was bolstered by reports of fruitful negotiations with Chinese President Xi Jinping.
His warning to Mexico City and Ottawa, however, damaged mood and put the majority of Asian markets into the red.
While Tokyo was somewhat higher but still below previous highs, Shanghai, Singapore, Seoul, Wellington, and Taipei all saw declines. Additionally, Hong Kong outperformed Manila and Sydney.
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.
Charu Chanana, chief investment strategist at Saxo Markets, said: “The tariff respite was short-lived, as expected, with the latest headline signalling that tariffs have been delayed but not averted.
“However, it seems like Canada and Mexico are in the focus but negotiation hopes are kept alive for China, suggesting China markets may still be supported.”
Wall Street was shut Monday for the Martin Luther King holiday, but US stock futures were solidly higher.
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