Stocks slump, dollar soars as Trump tariffs trigger trade war fear

Asian stock markets slumped on Monday and US equity futures pointed sharply lower after US President Donald Trump’s tariffs on Canada, Mexico and China triggered fears of a broad trade war and hit to global growth.

The US dollar shot to a record peak against the Chinese yuan in offshore trading, and its highest against Canada’s currency since 2003 and the strongest against the Mexican peso since 2022.

Japan’s Nikkei share average (.N225), opens new tab tumbled as much as 2.3% in early trading, and Australia’s benchmark (.AXJO), opens new tab – which often functions as a proxy for Chinese markets – slumped more than 2%.

Stocks in Hong Kong, which include listings of Chinese companies, fell 1.9% after a Lunar New Year holiday. China’s markets resume trading following the holidays on Wednesday.

Pan-European STOXX 50 futures sank 2.7%.

Trump followed through with threats to slap Canada and Mexico with duties of 25% and China with a 10% levy at the weekend, calling them necessary to combat the flow of migrants and fentanyl into the US.

Canada and Mexico immediately vowed retaliatory measures, and China said it would challenge Trump’s levies at the World Trade Organization.

The tariffs, outlined in three executive orders, are due to take effect at 12:01 a.m. ET (0501 GMT) on Tuesday.

Trump’s move was the first strike in what could usher in a destructive global trade war and drive a surge in US inflation that would “come even faster and be larger than we initially expected,” said Paul Ashworth of Capital Economics.

Read more: China says trade wars have ‘no winners’ after new US tariffs

A model gauging the economic impact of Trump’s tariff plan from EY chief economist Greg Daco suggests it would reduce US economic growth by 1.5 percentage points this year, throw Canada and Mexico into recession and usher in “stagflation” at home.

Barclays strategists previously estimated that the tariffs could create a 2.8% drag on S&P 500 company earnings, including the projected fallout from retaliatory measures from the targeted countries.

S&P 500 futures slid 1.6%, after a 0.5% retreat for the cash index on Friday, when the White House reiterated Trump’s plan to announce tariffs on Saturday. Nasdaq futures slumped 2.2%, following Friday’s 0.3% loss for the cash index.

The US dollar was up 0.5% at 7.3538 yuan in the offshore market in Asia, having earlier hit a record high of 7.3765. Onshore trading remains shut for holidays.

The US currency climbed 2.8% to 21.2547 Mexican pesos , the highest since March 2022, and rose as much as 1.4% to C$1.4755 , a level not seen since 2003.

The euro dropped as much as 2.3% to $1.0125 – the lowest level since November 2022 as Europe potentially stands in Trump’s tariff crosshairs.

US two-year Treasury yields rose as much as 3.6 basis points to 4.274%, a one-week high, on concerns tariffs will stoke U.S. inflation and delay interest-rate cuts.

Two-year Japanese government bond yields rose in sympathy, reaching their highest levels since October 2008.

The cryptocurrency bitcoin tumbled to as low as $92,997.86, a three-week trough.