European leaders were bracing for U.S. tariffs on Monday after United States President Donald Trump imposed sweeping levies on Mexico, Canada, and China that will affect billions of dollars worth of trade, roiling global markets and currencies.
Trump said the tariffs against the three largest U.S. trading partners, which take effect on Tuesday, might cause Americans some short-term pain, but “long term, the United States has been ripped off by virtually every country in the world.”
Global stock markets and currencies tumbled on Monday on concerns that the tariffs would trigger an economically damaging trade war. The pan-European STOXX 600 index fell 1.3 per cent in morning trading, set for its biggest one-day slide this year and futures for Wall Street’s S&P 500 fell 1.4 per cent.
Speaking at his Mar-a-Lago estate in Florida on Sunday, Trump indicated that the 27-nation European Union would be next in the firing line, but did not say when.
EU leaders meeting at an informal summit in Brussels on Monday said Europe would be prepared to fight back if the U.S. imposes tariffs, but also called for reason and negotiation.
Chancellor Olaf Scholz of Germany, the EU’s largest economy which is highly dependent on exports, also said the bloc could respond if necessary with its own tariffs against the U.S. but stressed it was better for the two to find agreement on trade.
Luxembourg’s Prime Minister Luc Frieden said: “I think tariffs are always bad. Tariffs are bad for trade. Tariffs are bad for the United States.”
Trump hinted that Britain, which left the EU in 2020, might be spared tariffs, saying: “I think that one can be worked out.”
The U.S. is the EU’s largest trade and investment partner and has consistently imported more goods than it has exported to the bloc. The U.S. goods trade deficit stood at 155.8 billion euros ($161.6 billion) in 2023, according to Eurostat data.
However, in services, the U.S. had a surplus of exports over imports with the EU of 104 billion euros.
EU foreign policy chief Kaja Kallas said there were no winners in a trade war, saying that if one broke out between Europe and the United States, “then the one laughing on the side is China.”
The tariffs on Canada, Mexico, and China, outlined in three executive orders, are due to take effect 12:01 a.m. ET on Tuesday.
Financial market reaction on Monday reflected concerns about the fallout from a trade war. Shares in Tokyo ended the day down almost three per cent and Australia’s benchmark – often a proxy trade for Chinese markets – dropped 1.8 per cent. The mainland China market was shut for Lunar New Year holidays.
The Chinese yuan, Canadian dollar, and Mexican peso all slumped against a soaring dollar. With Canada and Mexico the top sources of U.S. crude oil imports, U.S. oil prices CLc1 jumped more than 1%, while gasoline futures RBc1 rose nearly three per cent.
Trump’s tariffs will cover almost half of all U.S. imports and would require the United States to more than double its own manufacturing output to cover the gap – an unfeasible task in the near term, ING analysts wrote.
Other analysts said the tariffs could throw Canada and Mexico into recession and trigger “stagflation” – high inflation, stagnant growth, and elevated unemployment – at home.
In Europe, economists at Deutsche Bank said they were currently factoring in a 0.5 per cent hit to gross domestic product (GDP) should Trump impose ten per cent tariffs on the bloc.
A White House fact sheet gave no details on what Canada, Mexico, and China would need to do to win a reprieve.
Conclusion:
The recent imposition of tariffs by the United States on Mexico, Canada, and China has sent shockwaves through global markets and currencies, sparking concerns about the potential for a trade war. The European Union has called for reason and negotiation, but has also stated that it is prepared to fight back if necessary. The tariffs will have far-reaching consequences, including a potential impact on the global economy and the livelihoods of millions of people.
FAQs:
* What are the tariffs imposed by the United States on Mexico, Canada, and China?
+ The tariffs are 25% on Canadian and Mexican steel and aluminum, and 10% on Chinese goods.
* When do the tariffs take effect?
+ The tariffs take effect on Tuesday, 12:01 a.m. ET.
* How will the tariffs affect the global economy?
+ The tariffs could trigger a trade war, leading to economic uncertainty and potential recession.
* What is the impact on European markets?
+ The tariffs could lead to a 0.5% hit to gross domestic product (GDP) in the EU, according to Deutsche Bank analysts.
* How will the tariffs affect the European Union?
+ The EU has called for reason and negotiation, but has also stated that it is prepared to fight back if necessary.
* What is the impact on Canada and Mexico?
+ The tariffs could throw Canada and Mexico into recession and trigger “stagflation” – high inflation, stagnant growth, and elevated unemployment – at home.