Markets tumble as Donald Trump forges ahead with tariffs

Donald Trump’s first presidency was marked by a prosperous run for the financial markets. Here’s why it’s not the same this time around – yet.

The US stock market tumbled as President Donald Trump confirmed long-threatened tariffs on Mexico and Canada would begin on Tuesday.

In some of the biggest declines this year, the Nasdaq closed down 2.6 per cent, the S&P lost 1.8 per cent and the Dow 1.5 per cent.

WHAT CAUSED THE MARKET TO DIP?

Mr Trump on Monday confirmed he would forge ahead with plans to hit neighbours Canada and Mexico with a 25 per cent tariff.

He had foreshadowed the tariffs in February but agreed to a one month pause.

Hours before the extension ended and despite attempts to negotiate an alternative plan, Mr Trump said the tariffs would come into effect at midnight, claiming Mexico and Canada had not done enough to stem the flow of drugs and migrants into the country.

A previously imposed 10 per cent tariff on China was also increased to 20 per cent.

The tariffs on the country’s major trading partners have fuelled fears of a trade war, ballooning inflation, snarled supply chains and hikes in consumer costs.

Canadian Foreign Minister Melanie Joly warned her country was “ready with counter tariffs” and Beijing warned it was preparing to take countermeasures “to resolutely safeguard its own rights and interests”.

President Donald Trump speaks about the new tariffs in the Roosevelt Room of the White House in Washington. Picture: AP

AREN’T MARKETS TRADITIONALLY BETTER UNDER A TRUMP ADMINISTRATION?

The collapse in stock prices is in stark contrast to the market when Mr Trump first returned to the White House – with markets rising after his election win in November and the S&P hitting a record high last month.

The stock market largely enjoyed a prosperous run under Mr Trump’s first Presidency from 2017 to 2021 and he regularly commented on the market’s strength under his government.

But experts say uncertainty around the new government’s policies combined with factors outside the administration’s control such as global interest rates mean the market is unlikely to charge to those levels anytime soon.

And the uncertainty is likely to continue with Mr Trump also confirming on Monday that reciprocal tariffs on other countries would be implemented from April 2, joking he had planned to introduce them on April 1 but decided against it because it coincided with April Fool’s Day.

Traders work on the New York Stock Exchange (NYSE) floor in New York City. Picture: Getty Images via AFP

WHAT HAPPENS NOW?

The full impact of the tariffs is not yet clear but experts have predicted individual American consumers alone will be slugged more than $US1000 a year due to the measures and the price of a new car could spike by $US3000.

In addition to the hip pockets of consumers, how the tariffs will impact the wider economy including the financial markets, strength of the US dollar, inflation, interest rates and employment remains to be seen.

Financial experts have downplayed the stock drop in the wake of Mr Trump’s announcement, saying the outlook was still “favourable” and insisting Monday’s trading was “consistent with the choppiness we have seen over the past three months” in the financial markets.

The CBOE Volatility Index – colloquially referred to as Wall Street’s “fear gauge” surged, on Monday after Mr Trump’s tariff commitment, hitting its highest level since December.

Meanwhile, Europe’s defence stocks have surged in the wake of renewed talks over the fate of the Russia Ukraine war, with BAE Systems, Thales and Rheinmetall rallying as leaders met for crisis talks about the conflict.

– with AFP

Originally published as Markets tumble as Donald Trump forges ahead with tariffs