Trump’s tariffs shake markets as stocks and currencies fall

Investors react as Donald Trump’s tariffs on Mexico, Canada, and China drive market volatility and economic uncertainty.

U.S. President Donald Trump speaks during a signing ceremony in the Oval Office of the White House in Washington, D.C., on February 3, 2025. Photo by Chris Kleponis/CNP/Getty Images

By Alana Salsabila and Laila Azzahra

President Donald Trump’s decision to impose sweeping tariffs on major U.S. trading partners sent shockwaves through global markets on Monday. The announcement rattled investors, triggering sharp declines in stock indexes, fluctuations in currency values, and renewed concerns over inflationary pressures.

As trading began, the U.S. dollar strengthened while oil prices rose, but major stock indexes saw immediate losses. The S&P 500 and the tech-heavy Nasdaq fell by nearly 1 percent in early trading before regaining some ground on reports that tariffs on Mexican goods would be delayed by a month. Asian and European markets also tumbled, reflecting investor unease over potential economic disruptions.

The impact of Trump’s tariffs on Mexico, Canada, and China

When Trump first took office, many analysts dismissed his aggressive tariff rhetoric as a negotiating tactic. However, over the weekend, the administration made good on its threats, imposing a 25 percent tariff on imports from Canada and Mexico—America’s closest trade partners. Additionally, Canadian energy products and goods from China were hit with a 10 percent levy. While tariffs on Mexico may be postponed, those targeting Canada and China remain scheduled to take effect on Tuesday.

“The uncertainty at this stage is tremendous—not only regarding how these negotiations will unfold, but also fears that this is just the beginning and more tariffs could be on the horizon,” said Yung-Yu Ma, chief investment strategist for BMO Wealth Management.

Retaliation and currency market reactions

In response to Trump’s tariff announcement, leaders from Canada and Mexico swiftly pledged retaliatory measures. Both the Canadian dollar and the Mexican peso initially declined against the U.S. dollar but later recovered sharply following remarks from Mexico’s President Claudia Sheinbaum, who announced a temporary deal with Trump to delay tariffs on Mexican imports.

Asian and European markets also experienced significant declines. Japan’s Nikkei 225 and South Korea’s Kospi each fell more than 2.5 percent. In Europe, the Euro Stoxx 50—a key index of the continent’s largest companies—dropped by 1.6 percent. Meanwhile, Chinese markets remained closed for the Lunar New Year holiday, leaving questions about Beijing’s next move.

Auto industry and tech stocks hit hard

The automotive industry, which relies heavily on supply chains spanning Canada and Mexico, took a significant hit. Shares of major U.S. automakers suffered losses:

Tesla and General Motors both dropped over 4 percent.
Ford Motor Company declined by more than 3 percent.
Japanese automakers Toyota and Nissan saw losses of around 5 percent.
Honda Motor suffered a steeper decline, falling nearly 7 percent.
European carmakers Stellantis, Volkswagen, and Daimler fell more than 6 percent, while BMW slid 4 percent.

Technology stocks also faced turbulence, particularly semiconductor companies, which are highly sensitive to trade disruptions. Nvidia, already reeling from last week’s sell-off related to developments in the Chinese AI sector, saw its shares tumble more than 5 percent. Other major U.S. tech firms, including Apple, also suffered declines, with Apple’s stock down more than 2 percent.

Wall Street analysts at Wedbush Securities noted that investors were particularly concerned about the potential for further tariffs on China, which could disproportionately affect semiconductor firms and AI-driven companies.

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chipmaker, also saw a steep drop of more than 5 percent. Trump hinted over the weekend that additional tariffs could be imposed on semiconductor chips, as well as oil and gas, later this month.

Broader economic concerns and inflation risks

The market reaction underscores growing fears of an escalating trade war that could have widespread economic consequences. Investors and economists worry that rising tariffs could reignite inflationary pressures in the U.S., reversing recent economic progress.

The Federal Reserve, which kept interest rates steady during its last meeting, is now closely monitoring how tariffs may impact inflation. On Monday, investor expectations for a potential Fed rate cut shifted further into the second half of the year, as policymakers assess the economic fallout from Trump’s trade policies.

“The near-term consensus view is that tariffs will be inflationary,” said John Brady, an interest rate strategist at RJ O’Brien. Higher import costs could lead to price increases for consumers, further complicating the Fed’s strategy on interest rates.

Oil and cryptocurrency markets react

The energy sector also felt the ripple effects of Trump’s tariff decision. Prices for U.S. crude oil rose by about 1.6 percent, with analysts citing concerns over potential supply chain disruptions.

Meanwhile, cryptocurrency markets slumped as investors pulled back from riskier assets. Bitcoin dropped 4 percent, while shares of Coinbase, a major crypto trading platform, declined by more than 3 percent.

What’s next? Potential tariffs on Europe and China’s response

While Trump has yet to impose direct tariffs on European imports, he signaled over the weekend that it is “definitely going to happen.” The comment has fueled speculation that European industries, particularly automakers and luxury goods manufacturers, could be the next targets.

China, which stands to suffer the most from an extended global trade war, has responded cautiously. The Chinese Ministry of Commerce announced that it would formally challenge the tariffs at the World Trade Organization, signaling potential legal and diplomatic battles ahead.

“Rising trade policy uncertainty will heighten financial market volatility and strain the private sector, despite the administration’s pro-business rhetoric,” said Gregory Daco, chief economist at EY-Parthenon.

Investor uncertainty and market outlook

The financial world is now bracing for further turbulence. Deutsche Bank strategist Jim Reid noted that investors had long underestimated the likelihood of Trump following through on tariff threats, making the market reaction particularly severe.

“The tariffs come as a severe shock after the market refused to take the threat seriously,” Reid wrote in a research note.

As global markets grapple with the fallout, analysts warn that prolonged trade tensions could have lasting economic implications, particularly if further retaliatory measures escalate into a full-scale trade war. With Trump signaling additional tariffs on the horizon, investors and businesses alike remain on edge, waiting to see what the next chapter of U.S. trade policy will bring.