February 5, 2025 – US stock markets have taken a hit following President Donald Trump’s decision to move forward with tariffs on key trading partners, sparking a global market downturn and raising fears of a trade war.
US Market Reacts to Tariff Announcement
In the opening moments of trading on Monday, US stock indexes all fell by more than 1%, with the Nasdaq seeing the steepest decline, dropping roughly 2%. This marked a continuation of losses from overseas markets, with Germany and France both seeing their stock markets fall by more than 1.5%. The UK’s FTSE 100 also dropped about 1.4%, with carmakers among the hardest hit sectors.
The downturn comes in the wake of Trump’s announcement that he would implement tariffs of 25% on exports from Canada and Mexico and 10% on Chinese goods. Trump has framed these tariffs as part of an effort to curb illegal drugs and immigration, but they are expected to have far-reaching consequences on some of the world’s largest economies.
Global Reactions and Retaliation Threats
In response, Canada and Mexico have vowed to retaliate with their own tariffs, while China has promised “corresponding countermeasures” and indicated it will challenge the move at the World Trade Organization. Trump has also stated that tariffs on the European Union are imminent, further escalating fears of global trade disruptions.
Market Turbulence and Economic Concerns
With tensions rising, investors are bracing for a turbulent period. The US dollar strengthened amid market uncertainty, rising to record highs against the Chinese yuan and the Canadian dollar, which hit its lowest level since 2003. The euro also fell to a more than two-year low against the US currency.
“Investors are rattled at the prospects of a full-blown trade war breaking out,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Major US companies are feeling the impact of the tariffs. Companies such as Nike and Apple, both heavily reliant on Chinese manufacturing, saw their stock prices drop by around 3%. Similarly, automakers like Tesla and General Motors experienced sharp declines, while Toyota and Honda saw drops of 5% and 7.2%, respectively, in Japan. In Europe, Stellantis and Volkswagen stocks also fell by around 7%.
Shares in Diageo, a drinks maker that exports tequila from Mexico to the US, dropped by 3.8%.
Economic Impact and Inflation Concerns
Market analysts warn that the tariffs could lead to higher inflation and disrupt economic activity. Russ Mould, investment director at AJ Bell, noted the “sea of red flashing on the markets,” with concerns that rising prices might dampen demand and impact business and consumer confidence.
The threat of prolonged higher interest rates to curb inflation further boosted the dollar, while oil prices surged due to uncertainty about how tariffs on Canada and Mexico – the US’s biggest oil suppliers – would affect the global oil market.
Charu Chanana, chief investment strategist at Saxo Bank, cautioned that while tariffs might offer short-term benefits to the US, they carry long-term risks, particularly if other countries start reducing their reliance on the US economy. This, she warned, could undermine the US dollar’s role as the world’s primary reserve currency.
