Stocks in Europe and Asia fell sharply after US President Donald Trump imposed tariffs on Canada, Mexico, and China, while also vowing to target the European Union.
President Trump issued three executive orders on February 1, 2025, directing the United States to impose new tariffs on imports from Canada, Mexico, and China, to take effect on February 4, 2025. Canada and Mexico now face 25% tariffs on exports to the U.S., while Chinese goods will be subject to a 10% levy on top of existing duties. Trump also said that new tariffs on the EU would “definitely happen”.
Canada and Mexico ordered retaliatory tariffs on American goods in response to sweeping tariffs by the U.S. Canada initially ordered tariffs of 25% on American imports including beverages, cosmetics and paper products worth 30 billion Canadian dollars ($20 billion). A second list of goods to be released soon is likely to include passenger vehicles, trucks, steel and aluminum products, certain fruits and vegetables, beef, pork, dairy products, aerospace products and more. Those goods were estimated to be worth 125 billion Canadian dollars ($85 billion).
China pledged “corresponding countermeasures” and a challenge at the World Trade Organization. Mexico has so far said only that it will impose retaliatory tariffs, without mentioning any rate or products.
Trump defended the move, saying the tariffs aim to curb illegal immigration and drug flows into the U.S. Trump is set to speak with Canadian and Mexican leaders Monday ahead of the tariffs taking effect at midnight Tuesday.
Stocks tumble and dollar jumps as tariffs loom
Consequently, Global stocks tumbled, with automakers among the worst hit, as investors braced for heightened market volatility, fearing the impact on corporate earnings and global growth.
Germany’s DAX and France’s CAC 40 each dropped about 2%, while the UK’s FTSE 100 fell over 1%. In Japan, Toyota shares slid 5%, while Honda plunged 7.2%. European carmakers were also affected, with Stellantis falling 7% and Volkswagen down 6%. UK-based Diageo, which exports tequila from Mexico to the US, lost 3%.
The US dollar surged, hitting a record high against China’s yuan and sending the Canadian dollar to its lowest level since 2003. The euro dropped to a two-year low against the greenback.
Investors fear higher inflation could stall interest rate cuts, creating further uncertainty. “Higher prices could hurt demand, and there might be a trickle-down effect that knocks business and consumer confidence,” said Russ Mould, investment director at AJ Bell.
Adding to market jitters, Trump said Sunday that EU tariffs were inevitable, though he suggested a deal with the UK could be negotiated.
“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.
Oil prices rose as traders assessed how tariffs on Canada and Mexico—two of the U.S.’s top oil suppliers—would impact supply. Brent crude climbed 1% to $76.50 a barrel.
Charu Chanana, chief investment strategist at Saxo, warned that prolonged tariff use could weaken the dollar’s global role. “Repeated use of tariffs would incentivize other countries to reduce reliance on the U.S.,” she noted.