Geopolitical trade and international relations may be fractured by U.S. tariffs, but it could be domestic consumers, the economy and markets that hurt the most.Geopolitical trade and international relations may be fractured by U.S. tariffs, but it could be domestic consumers, the economy and markets that hurt the most.
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U.S. President Donald Trump’s 25% tariffs on Canada and Mexico, and an additional 10% on China, are officially in place, proving that he wasn’t brandishing them merely as a negotiating tactic, as many had thought — and hoped. Canada and China have since announced retaliatory tariffs, while Mexico said its response will come Sunday.
Geopolitical trade and international relations may be fractured by the U.S., but it could be domestic consumers and the economy that hurt the most. Business leaders in shipping and retail — two industries that serve as bellwethers of the economy — expressed concerns that the tariffs could raise prices, even within days.
Over in markets, investors were likewise spooked. All major U.S. benchmarks slumped. Gains made by the S&P 500 as it rode the victory wave of Trump’s victory on Election Day have now vanished. Tech stocks have been battered since Trump’s inauguration in January. The tax on imported goods from other countries is starting to look like one on stocks too.
What you need to know today
Compromise on tariffs?
U.S. President Donald Trump’s 25% tariffs on goods imported from Canada and Mexico, as well as an additional 10% levy on China, kicked in midnight on Tuesday. U.S. Commerce Secretary Howard Lutnick said Tuesday that Trump will “probably” announce tariff compromise deals with Canada and Mexico as soon as Wednesday. However, Lutnick appeared to rule out the possibility that Trump would lift the tariffs entirely.
Price increases likely, businesses say
Trump’s tariffs could push up prices in days, business leaders said. “The short-term effect of any tariff clearly is inflation,” said Charles van der Steene, president of North America for shipping giant Maersk, while Target CEO Brian Cornell told CNBC on Tuesday “the consumer will likely see price increases over the next couple of days.” This is causing fears of “stagflation” in the U.S. economy, in which prices rise but growth slows.
Markets slump on tariff fears
Investors sold off U.S. stocks Tuesday, spooked by the tariffs’ effects on the economy. The S&P 500Dow Jones Industrial AverageNasdaq CompositeStoxx 600biggest daily loss since August. The Stoxx 600 basket of automotive stocks — one of the sectors expected to be most affected by the new duties — fell 5.7%.
‘Trump bump’ election gains wiped out
The “Trump bump” in markets has disappeared. After tumbling on Tuesday, the S&P 500 closed at 5,778.15, below the 5,782.76 level on Election Day, Nov. 5. This means the index has lost its post-election gains. The Russell 2000technology stocks have slumped more than 7% since Trump took office in January.
[PRO] Look to Europe for equity: analysts
Europe is the place to be for equity investors, according to analysts who flagged rising valuations and political risk in the U.S. market as drawbacks when compared to Europe’s more stable geopolitical environment. Europe’s market and economy also offer several other advantages over that of the U.S.
And finally…
Geopolitical developments from just this month have seen U.S. tariffs on Canada, Mexico and China come into effect, U.S. President Donald Trump’s reported pause on military aid to Ukraine, softer economic data out of the U.S., and European leaders committing to ramp up defense spending. David Roche, a strategist at Quantum Strategy, said such events could see the greenback dethroned as the FX market’s safe haven.
Jane Foley, head of FX strategy at Rabobank London, told CNBC via email on Tuesday that she was expecting the British pound and the Japanese yen to be winners in the current environment. Dominic Schnider, head of global FX and commodity at UBS Global Wealth Management, said “investors may shift more significantly toward higher-yielding currencies” such as the Australian dollar and British pound.
