This is not a drill
Here’s everything you need to know – from what’s been announced to how markets have responded.
Markets tumble as trade war heats up
European markets have also tumbled so far this morning, as investors process the fact that the EU could be next on Trump’s hit list. The Stoxx Europe 600 is down more than 1% at the time of writing.
Meanwhile in the UK, the FTSE 100 is down more than 1% so far. Trump has indicated that a deal could be “worked out” with the UK to exclude it from tariffs, but even if this is the case, a global trade war would spell bad news for domestic markets and the economy.
European tariffs: “the writing is on the wall”
Although no tariffs have been directed at Europe so far, the “writing is on the wall”, according to Michael Field, chief market strategist at Morningstar. “That Donald Trump has no qualms about imposing them on his nearest neighbours, means that Europe too should be bracing for impact,” he added.
Trump recently told the BBC that the European Union has “taken advantage” of the US and is “way out of line” for not importing more US goods. In 2023 (the most recent year we have annual figures for), the US-EU trade deficit was $208.2 billion.
“They don’t take our cars, they don’t take our farm products, they take almost nothing. And we take everything from them,” Trump said.
Canada and Mexico: is a recession on the cards?
“Since exports to the US account for around 20% of their GDP, today’s tariffs could plunge both the Canadian and Mexican economies into recession later this year,” said consultancy Capital Economics.
Carve-out for Canadian energy
Trump’s tariffs include a special carve-out for Canadian energy imports, which will be hit with a lower 10% tariff (as opposed to 25%).
Canadian prime minister Justin Trudeau has previously said that Canadian energy “powers American manufacturing, businesses and homes.”
Speaking in recent weeks before Trump's tariffs were imposed, Trudeau added: “The alternative for [the US] would be more resources from Russia, China or Venezuela. Canada is a safe, secure and reliable partner in an uncertain world.”
What do tariffs mean for inflation?
Just as prices were coming under control, Trump’s tariffs could fan the embers of inflation on a global scale.
If costs increase, businesses could be forced to raise their prices in an attempt to protect their margins – another hit for consumers.
The effects won’t be confined to the US, Canada, Mexico and China either. Global economies operate in a tangled web of interdependence. If goods in the US suddenly become more expensive to produce because of tariffs, any other country that imports those goods will have to pay a premium too.
Markets were not prepared for Trump's aggression
George Saravelos, global head of FX research at Deutsche Bank, says: “By our estimates, the market was roughly pricing the equivalent of a 5% universal tariff being enacted in coming months, equivalent to a 30bps ‘hump’ in the US inflation curve.
“The announcements this weekend are roughly three times larger with reasonable passthrough assumptions, i.e., we would expect a 1% US headline inflation impact if tariffs are sustained.
“These tariffs are also roughly five times as large as the cumulative sum of trade actions taken under the first Trump administration measured in terms of average tariff increases.”
Saravelos thinks the market needs to “structurally and significantly reprice the trade war risk premium”.
Retaliatory tariffs: Canada bites back
“Canada will not stand by as the United States imposes unjustified and unreasonable tariffs on Canadian goods,” the Canadian government said. “In response, we are moving forward with 25% tariffs on $155 billion worth of imported US products.”
China to challenge tariffs at World Trade Organisation
China’s Ministry of Commerce has said it will take “corresponding countermeasures” against the US after Trump announced a 10% tariff on Chinese imports. It has not yet given any specifics.
US equity markets fall
- S&P 500: -1.77%
- Dow Jones: -1.38%
- Nasdaq: -2.24%
“Trump’s launch of tariffs in 2018 did raise revenues for America but US corporate profits took a hit that year and America’s S&P 500 index fell by a fifth, so markets have understandably taken fright this time around,” said Russ Mould, investment director at AJ Bell.
How much revenue will tariffs raise for the US government?
On social media, Trump has previously said that revenue from tariffs could be used to pay off US debt and “make America wealthy again”. However, it is US consumers who will end up footing at least part of the bill in the form of more expensive goods.
“Revenues from the tariffs could reach almost $250bn per year, or 0.8% of GDP. That could be a significant hit to the US economy if those revenues are used to reduce the federal budget deficit rather than recycling them into the economy by cutting taxes or boosting federal spending,” said Paul Ashworth, chief North American economist at Capital Economics.
Trump pauses tariffs on Mexico for one month
Sheinbaum wrote on social media site X: “We had a good conversation with president Trump… we reached a series of agreements”.
Case study: how a Chevrolet Silverado is made
As Caleb Miller, associate news editor at Car and Driver points out, a portion of the company’s trucks come from General Motors’ factory in Silao in Mexico, while others are built in Oshawa in Ontario.
This is just one example at one company – scale it up and you start to get a picture of just how disruptive tariffs could be for businesses.
Ford and Stellantis – two other American car giants – also have factories across the border in Mexico and Canada.
Can the US bull market continue?
Indeed, even before the events of the past week, the word “bubble” was being used more and more extensively as investors questioned whether US equity valuations had gotten out of hand. The US tech sector in particular has flown in recent years. Whether it is on the brink of an Icarus moment is up for debate.
Despite this, Tom Stevenson, investment director at Fidelity International, warns against panic, encouraging investors to “view the threat to markets in context”.
He adds: “January closed out on Friday on a high, global shares rose by 3.4% during the month, with the S&P 500 up 2.8% and the equal-weighted version of the same index up 3.5%. Much of this strength can be attributed to another solid earnings season, with 80% of the companies reporting so far beating expectations.”
That concludes our live coverage for today. Thank you for joining us. We will be back tomorrow with further updates and analysis.
The headlines overnight
Good morning and welcome back to our live blog on Trump’s tariffs. These are the headlines since we signed off yesterday evening:
- Tariffs on Canada have been postponed after last-minute talks between Trump and Trudeau.
- In exchange, Trudeau has agreed to reinforce the US-Canadian border in a deal that has echoes of the agreement between Trump and Mexican president Claudia Sheinbaum.
- 10% tariffs against China have not been postponed and came into effect at 00:01 EST this morning.
- Beijing has announced retaliatory tariffs on US products, including a 10% tariff on crude oil, farm equipment and some vehicles, and a 15% tariff on coal and liquified natural gas (LNG).
European markets still jittery
“With markets on a tariff tightrope, volatility looks set to stick around,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
Investors are still weighing up when and how Trump might set his sights on Europe – and what exactly he is trying to achieve. As yesterday’s developments show, the situation can change quickly.
“For those willing to ride the waves, there may be chances to cash in on overreactions, especially if Trump’s tariff bark proves worse than his bite,” Britzman added.
What do tariffs mean for the dollar?
The US dollar strengthened after Trump’s tariffs were announced over the weekend. It has since fallen back slightly after measures against Mexico and Canada were put on pause.
Tariffs usually strengthen a country’s home currency because they make it more expensive to buy and import foreign goods (which are priced in foreign currencies). This means fewer foreign goods are bought which, in turn, means less foreign currency is needed.
Ultimately, the dollar could strengthen even further if Trump’s tariffs result in higher inflation. Why? Because a resurgence in inflation could force the Federal Reserve to keep interest rates higher for longer. Generally speaking, a currency strengthens when interest rates go up and weakens when they go down.
Tariff threats: a headache for Diageo
Drinks company Diageo – the owner of brands like Guinness, Smirnoff and Johnnie Walker – announced its interim results today (4 February). The company’s shares are in the red after it ditched its medium-term growth guidance (5-7% organic net sales growth), blaming the current geopolitical environment.
The US is Diageo’s largest market, and chief financial officer Nik Jhangiani told analysts on the earnings call that around 45% of the company's net sales in the region come from products made in either Canada or Mexico. This includes the company’s tequila portfolio, as well as Canadian whiskey. With this in mind, Trump’s tariffs are a real concern.
Adam Vettese, market analyst at investment platform eToro, said: “Despite revenue coming in slightly ahead of forecast, the spectre of tariffs looming is a far bigger priority with the company particularly exposed.
“Bosses will be hoping for some kind of US-Mexico accord given they imported $1.6 billion worth of tequila into the states last year. The fact the firm has withdrawn any medium-term forecasts based on the potential impact of tariffs really demonstrates the gravity of the situation.
“Diageo has said they will take measures to try and mitigate the impact of tariffs, but realistically there’s a limit to what cost-cutting and inventory management can do when faced with such a mammoth additional expense.”
Shein and Temu could be hit as Trump closes tax loophole
In the executive order which imposes 10% tariffs on Chinese imports, Trump has included a footnote which closes a tax loophole known as “de minimis” rules.
Tariffs could add to existing pain for Chinese economy
Despite this, Kai Wang, market strategist at Morningstar, says the immediate consequences should be limited to specific sectors. These include home appliances, home furnishings, lithium batteries and EVs – all of which have "sizeable exposure to US revenue".
Thank you for following our live blog again today. That concludes our coverage for this evening.
Trump to announce steel and aluminium tariffs
This time, the president has said he will announce 25% tariffs on all steel and aluminium imports. The move is expected to have the biggest impact on Canada – the largest exporter of steel and aluminium imports to the US. Mexico also exports a large amount of steel to its northern neighbour.
Announcement on retaliatory tariffs is also coming
Trump also said that he would make an announcement later this week on retaliatory tariffs. He indicated that these would be imposed on countries who tax US imports, saying: “If they charge us, we charge them”.
How much steel does the US import?
Country | Steel imports in 2024 (net tons) |
Canada | 6.6 million |
Brazil | 4.5 million |
Mexico | 3.5 million |
South Korea | 2.8 million |
Vietnam | 1.4 million |
Japan | 1.2 million |
Germany | 1.1 million |
Taiwan | 1.0 million |
Netherlands | 0.6 million |
China | 0.5 million |
Romania | 0.5 million |
Turkey | 0.4 million |
United Arab Emirates | 0.4 million |
Italy | 0.3 million |
Spain | 0.3 million |
All other | 3.8 million |
Source: American Iron and Steel Institute, based on preliminary Census Bureau data.
What do Trump's tariffs mean for markets?
“Trump's tariffs on steel and aluminium sold into the US are negative for markets on two levels,” says Russ Mould, investment director at AJ Bell.
“First, it suggests the new US president has only just got started with America’s budding protectionist trade policy. Second, it extends the affected countries beyond Canada, China and Mexico to places like Germany, Brazil, Japan and South Korea.”
He adds: “With the promise of further tariffs later this week, Trump’s actions threaten to cause considerable volatility on the markets over the coming days if there is a tit-for-tat response from affected countries."
Impact on the UK steel industry
According to a report from the House of Commons Library, published in October 2024, the UK steel industry contributed £2.3 billion to the UK economy in 2023. This is equivalent to around 0.1% of total UK economic output and 1% of manufacturing output.
In other words, the steel industry isn’t a huge part of the domestic economy, but it is still made up of more than 1,000 companies and supports 40,000 jobs.
Around one tenth of the UK’s total steel exports were sent to the US last year, according to news outlet Politico. Trade association UK Steel has said that tariffs would be a “devastating blow”, if imposed.
That's all for tonight, but we will be back with further news and analysis tomorrow morning. Thank you for joining us.
Market response to Trump’s tariffs
Good morning and welcome back to our live blog. Let’s take a look at how markets have responded to Trump’s proclamation on steel and aluminium last night.
There was some volatility in Asian markets during trading hours on Tuesday as investors digested the implications of Trump’s steel and aluminium tariffs. The Hang Seng Index fell 1.06%, while the Shanghai Composite Index closed 0.12% lower.
In Australia, the ASX 200 ended the day roughly where it started, just 0.01% higher. One constituent, Mineral Resources Ltd, fell 6.93% during the session. The company mines iron ore – one of the main ingredients in steel.
How significant are the latest tariffs in the context of world trade?
“According to data from Intracen, trade in aluminium, steel (and iron) makes up just 3% of world trade even including fabricated products like drums and cans. And within that, exports to the US are just 0.25% of world trade, so these tariffs in themselves are no game-changer,” economists Jennifer McKeown and Hamad Hussain write.
When you drill down to individual economies, Canada is the most exposed country, with impacted exports accounting for around 1% of its GDP. Meanwhile, the impact on China will be “negligible”.
McKeown and Hussain explain: “The US already has high tariffs on Chinese steel (47.5%) and aluminium (32.5%), which means that trade is already limited and the incremental impact of even higher tariffs should be small.
“While China did still send $2.5bn worth of the metals to the US last year, this represents just 0.5% of its exports to the country and 0.01% of its GDP.”
"The big one": are reciprocal tariffs coming?
The latest announcement from Donald Trump suggests that the global trade spat he’s been spoiling for could be imminent.
“THREE GREAT WEEKS, PERHAPS THE BEST EVER, BUT TODAY IS THE BIG ONE: RECIPROCAL TARIFFS!!! MAKE AMERICA GREAT AGAIN!!!” the president posted on his social media platform, Truth Social, earlier today.
“Very simply it's if they charge us, we charge them,” Trump told reporters on Sunday. Effectively, any country that charges tariffs on US imports will have similar levies imposed on their exports to the country.
Reciprocal tariffs: what we know
The memo directing Trump’s advisers asked them to report with a plan within 180 days.
“In almost all cases, they're charging us vastly more than we charge them,” said Trump, adding that “those days are over".
Stay tuned for analysis on the countries that could see the biggest impacts from Trump’s tariff regime.
Which countries will be most affected by reciprocal tariffs?
Trump’s reciprocal tariffs directive replaces a previously proposed imposition of blanket tariffs of 10-20% on all imports into the US. Instead, reciprocal tariffs will likely be based on the tariffs that countries levy on US imports as well as factors like VAT regimes and trade imbalances.
“The countries that would feel the real impact of a fully reciprocal tariff policy aren’t the US's biggest trading partners,” says Lale Akoner, global market analyst at eToro. “In fact they’re Asian economies such as India, Indonesia, Thailand, and Latin American countries such as Brazil. That is because these countries impose more tariffs on the US than the US imposes on them.”
We’ll take a closer look at these regions today, and explore the countries that could see the greatest impact.
Asia: reciprocal tariffs put India in the crosshairs
“Based on a simple calculation that sums VAT rates and the difference in tariff rates, India emerges as the country within Asia that would be hit hardest by a new tariff regime,” writes Gareth Leather, senior Asia economist at Capital Economics.
“As we have highlighted previously, Trump has shown a willingness to strike deals,” he writes. “It is notable that India recently cut import duties on imports of motorbikes and bourbon whisky, and yesterday agreed to start trade talks with the US.”
Currency markets unfazed by reciprocal tariff threat
“We have seen muted trading of the currencies of countries to be affected the most – India, Indonesia, Thailand and Brazil – in case of a reciprocal tariff,” Lale Akoner, global market analyst at eToro, tells MoneyWeek. “This suggests that traders still see the latest announcements as just a negotiating tool ("escalate to de-escalate").
“Overall, markets currently think that tariffs will be selectively implemented and the US is looking to negotiate first,” she adds.
Trump tariffs and gold prices
“Trump's approach to tariffs is creating a lot of uncertainty in the world's economies, including the United States,” says Stephen Mullowney, CEO of gold mining company TRX Gold. “Gold is seen as a safe haven in uncertain times and is very liquid; thus, it has received a boost in price.
“Trump’s tariffs and threats have also raised the value of the US dollar compared to other currencies.” This has meant that gold prices in non-dollar currencies, like pound sterling, have increased even further.
“There is an expectation that inflation will remain high in the United States due to the tariffs increasing the cost of goods potentially combined with tax cuts," says Mullowney. "Gold has historically been a good hedge against inflation.”
Thanks for following our blog through a turbulent week for global trade.