US Tariffs And Market Turmoil: What To Know

Imposing tariffs on imported products is not something new; the US has followed the same practice in the past including during ex-President Joe Biden’s term. However, this time the US tariffs targeted not only China but also its neighbours Mexico and Canada.

Now that we have the first samples of Donald Trump’s policies, let’s see what market analysts forecast regarding his moves so read our article to learn more.

President Trump Pushes Tariffs But Then Backtracks

On February 1st, the newly elected US President Donald Trump announced that his country would impose tariffs on a series of imported products coming from China as well as its neighbouring countries of Canada and Mexico. While the Chinese side has become accustomed to tariffs in the past few years, the Canadian and Mexican governments hoped that Trump’s rhetoric would not materialise.

The announcement by the White House said that a levy of 25% on Canadian (10% for Canadian energy products) and Mexican imports as well as an additional 10% tax on Chinese goods would come into force on Tuesday February 4th.

The new US administration believes that by imposing tariffs on the products of major competitor economies, it would be able to ignite economic growth and create millions of jobs as US companies would bring their production units back to the country. Even though Trump attacked Joe Biden during the election period regarding high prices and inflation that hurt citizens’ budgets, the newly-elected President noted that Americans may feel the heat as prices could rise again.

In a sudden change of strategy, US President Donald Trump agreed to a 30-day pause on the implementation of the planned 25% tariffs on imports from Canada and Mexico, as the two countries agreed to take steps to prevent the illicit drug trafficking of fentanyl into the US.

China Counterattacks Imposing Tariffs On US Products

The Chinese government shared that it firmly opposed tariffs and noted that “trade and tariff wars have no winners.” The Chinese side mentioned that it would ask for the help of the World Trade Organisation (WTO) as “the US unilateral tariff hike seriously violates WTO rules, does nothing to resolve its own issues, and disrupts normal economic and trade cooperation between China and the US. In response to this wrongful action, China will file a lawsuit with the WTO and take necessary countermeasures to firmly safeguard its rights and interests.”

On February 4th, China announced that it would impose additional tariffs of 15% on coal and liquified natural gas imports from the US, starting on February 10th. Chinese authorities said they would also levy 10% higher duties on US crude oil, farm tools and specific vehicles, and enact export controls on certain products related to critical minerals.

ING Says Market Uncertainty Not Gone

Commenting on tariffs, ING analysts said that unpredictability, when it comes to financial policies by the US administration, would protect the US dollar’s value. In their report, released on February 4th, they wrote: “Trump managed to obtain greater commitment to border security from both countries, although there seemed to be limited discussion on trade. The question of whether Trump had planned an eleventh-hour deal with the two countries or was perhaps encouraged by some domestic backlash remains an open question. Either way, markets need to follow a rationale, and we think the conclusion is that Trump is ready to bluff his way into transactional victories, whether on border security or trade. For FX, this means the dollar may not experience big rallies against directly and indirectly impacted currencies simply on the back of a tariff announcement, but only after duties effectively come to place and there are indications that they will stay.”

The Dutch bank’s economists noted that pausing tariffs wouldn’t really reduce market  uncertainty: “The final point to make is that markets are not fully pricing out the tariff threat just yet. That’s because tariffs have been only delayed by a month, and secondly because the rollercoaster of trade news in the past few days does leave markets with a higher degree of uncertainty and unpredictability that harms high-beta currencies both due to direct protectionism exposures and due to risk sentiment implications.”

ABN Amro: US – China Tariff Clash Has Started

ABN Amro’s market analysts suggested that, although China and US find a short-term solution now, the tariff clash has already started between the two countries. In a comment, published by The Guardian, they mentioned that the Chinese government would try to overcome the effect by reducing interest rates and increasing spending.

The report noted: “Although the first tariff implementation now seems to have come even earlier than anticipated in our Global Outlook, The Year of the Tariff, in our base case we already anticipate a material (gradual) stepping up of US import tariffs on China to an average effective tariff rate of 45% per Q2-2026. While talks between Trump and Xi may potentially smoothen the risk of a further escalation for now, Trump stated earlier this week that he sees the 10% tariffs as a first salvo, with tariffs on China potentially moving much higher if no agreement is reached.”

Goldman Sachs: Europe May Face Headwinds Due To Trade Tensions 

The European Union (EU) will likely not be an exception as the US President has mentioned his will to impose tariffs on EU products. Goldman Sachs economists suggest that the euro bloc could suffer a “sizeable hit to activity” as trade tensions increase.

More specifically, they note that “first, we expect a sizeable hit to activity from the ongoing rise in trade tensions. While the Euro area might benefit slightly from trade diversion associated with any US tariffs on Canada and Mexico, President Trump has reiterated his plan to also raise tariffs on the EU.”

The head of the EU Commission, Ursula von der Leyen, has said that the European side was ready to engage in "tough negotiations" with Donald Trump to prevent a trade war.  Von der Leyen said that “we will be ready for tough negotiations where needed and to find solutions where possible, to work out any grievances and to set the foundations for a stronger partnership. We will be open and pragmatic about how to achieve that. But we will make it equally clear that we will always protect our own interests – however and whenever that is needed. This will always be the European way.”

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