Trump tariffs shock world and U.S. stocks

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Canada and Mexico might have got off (relatively) easy on Donald Trump’s Liberation Day, but for the rest of the world the tariff blow was far worse than expected — and market reaction suggests the biggest loser could be the United States.

The U.S. yesterday announced it will impose a 10 per cent tariff on all countries, with some facing even higher rates, including 34 per cent for China and 20 per cent for Europe.

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This pushes the U.S. effective tariff rate to more than 20 per cent — the highest level since the 1940s, said Toronto-Dominion Bank economists.

While Trump said trading partners could negotiate to lower those rates, analysts expect rising trade tensions and the initial shock of the announcement will lead to some retaliation.

“In the next hours and day, the world’s reaction, likely retaliation and how much effort and money countries will deploy to fight the U.S. back will matter,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“For now, everyone’s sinking, but the U.S. is going under first.”

U.S. stocks took the brunt of the selloff after the announcement. Futures dropped more than 4 per cent, compared with a 1.7 per cent decline in Asian stocks. European futures fell 2.4 per cent before paring losses.

The U.S. dollar fell against all G-10 currencies, dropping to its weakest level against the Canadian dollar since mid-December.

Analysts say there is growing anxiety that Trump’s upheaval of global trade threatens not only the U.S. economy, but the world’s as well.

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“It’s definitely more aggressive than what people were expecting,” Brad Bechtel, head of foreign exchange at Jefferies Financial Group Inc. in New York, told Bloomberg. “It’s a bigger doom loop for the rest of the world.”

Canada remains under the tariffs Trump had already imposed but was not subject to this latest round. It will though feel their sting as global growth slows, particularly in the United States.

“Canada and Mexico didn’t go down with the ship, but they are left bobbing away in frigid waters,” said Derek Holt, head of Capital Markets Economics at Scotiabank.

The “astronomical increase” in the effective tariff rate on U.S. imports could shave 1 to 2 per cent off America’s gross domestic product in the medium term, said economists with CIBC Capital Markets.

Tariff revenue could soften the blow over time, but in the short run businesses and consumers are likely to hold off investment and major purchases in hopes tariffs are reduced, they said. The Federal Reserve will likely hold off rate relief as inflation rises.

Prime Minister Mark Carney warned yesterday that Trump’s tariffs would “fundamentally change the international trading system,” and he expects that to be negative for the U.S. economy.

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“That will have an impact on us,” he said.

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If you thought gold was rich in American dollars, try it in Canadian.

Spot gold peaked at US$3,149 an ounce on Tuesday, which works out to about $4,509.50.

Compare that to the summer of 2022 when gold was going for half that, said Douglas Porter, chief economist at BMO Capital Markets. 2008 was the first time gold hit $1,000 an ounce.

Even taking inflation into account, gold’s record run is impressive, he said. The past peaks adjusted for inflation were $3,000 an ounce in 1980 and later in 2020.

“Real prices are now about 50 per cent above even those lofty heights,” said Porter.

• Today’s Data: Canada international merchandise trade, U.S. trade balance
• Earnings: Dollarama Inc., Conagra Brands Inc., Lamb Weston Holdings Inc

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Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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