Donald Trump threatens to impose tariffs on Mexico, Canada, jolting markets

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Donald Trump sparked a flurry in financial markets hours after taking office as he threatened to impose steep tariffs on Mexico and Canada.

Speaking in the Oval Office on Monday night, Trump said he may impose 25% tariffs on the two countries as early as February 1, reiterating previous threats to impose tariffs on the two closest trading partners of the United States. Taxes in retaliation for fragile border security and fentanyl. Trafficking.

Trump's renewed warning sent the Mexican peso down 1.1% against the U.S. dollar and the Canadian dollar down 0.9% as the Asia-Pacific trading session began on Tuesday.

Both currencies rose sharply on Monday after administration officials said Trump would not immediately impose taxes on major partners but would instead study the trade situation.

The price swings underscored how investors are bracing for upheaval this week, particularly in currency markets, as Trump rolls out plans to undo many of Joe Biden's signature policies and lay out a protectionist agenda that would push U.S. Weaponization of economic influence.

“This kind of volatility has become the new normal,” said Eric Winograd, an economist at AllianceBernstein. “Compared to the policies we were used to under the Biden administration, under the Trump administration policies may be less predictable and less process-oriented.”

A broad sell-off in the U.S. dollar also eased following Trump's comments on tariffs, with losses on the U.S. Dollar Index , which measures the greenback against six currencies, falling from 1.3% to just 0.7%. Futures tracking Wall Street's S&P 500 index also fell 0.5%.

The new president lashed out at the European Union on Monday night, threatening tariffs if the bloc doesn't buy more U.S. oil, signaling Trump's intention to use trade restrictions as a key diplomatic tool.

“They don't take our cars, they don't take our produce, they take almost nothing,” Trump said. “Yet we take their cars, we take their produce, We're taking a lot from them, so we're going to fix that with tariffs or they have to buy our oil.”

The euro, the largest weighting in the U.S. dollar index, fell about 0.5% against the U.S. dollar in early Asia-Pacific trading on Tuesday to $1.04, partially reversing Monday's 1% gain. Sterling fell 0.4% to $1.23 against the dollar after rising 0.8% the previous day.

In Asian markets, traders were relieved that Trump did not immediately impose trade restrictions on China, although he warned that Beijing could hand over some control of social media app TikTok to the United States if it refuses to do so. .

The CSI 300 Index of mainland listed companies opened up 0.5%, and Hong Kong's Hang Seng Index rose 1%. The offshore yuan also strengthened to a six-week high of 7.25 per dollar.

“Simply put, from a risk asset perspective, we may have avoided the worst-case scenario. There were no tariffs on China on day one,” said Jason Lui, head of Asia Pacific equity and derivatives strategy at BNP Paribas. “

“Chinese stocks (have) rebounded on the inauguration after Trump's phone call with Xi over the weekend, which is why there was a more cautious reaction.”

Adam Samson and Harriet Clarfelt reported in New York, Aime Williams in Washington, Arjun Neil Alim in Hong Kong, Leo Lewis in Tokyo and Nic Fildes in Sydney