Asian and European stock markets dropped on Monday as the global fallout from President Trump’s decision to impose tariffs on Mexico, Canada and China began. In the United States, shares were poised to open lower.
Japan’s Nikkei 225 index and South Korea’s Kospi each fell more than 2.5 percent. The Taiwan Stock Exchange weighted index slumped 3.5 percent. Markets in mainland China were closed on Monday for the Lunar New Year holiday. Stocks in Hong Kong, where many Chinese companies trade, dipped slightly.
Europe’s stock indexes also tumbled. The Euro Stoxx 50, made up of the region’s largest companies, dropped 2 percent and the FTSE 100 in Britain declined 1.3 percent. In the United States, S&P 500 futures slid 1.5 percent.
As investors begin to assess the potential impact from what could be the start of a disruptive global trade war, big exporting countries in Asia and Europe are likely to be particularly affected. Companies are exposed to the tariffs because they have made sizable investments in North America under agreements meant to ease trade.
For traders, the tariffs come as a “severe shock,” Jim Reid, a strategist at Deutsche Bank, wrote in a note. “The market has refused to take that threat seriously though, completely underpricing the risks.”
Some of the biggest drops in share prices on Monday were among auto manufacturers, which have poured billions into supply chains in Canada and Mexico that could be hit by new taxes. Japan’s Toyota Motor and Nissan Motor fell about 5 percent in trading on Monday, while Honda Motor slumped nearly 7 percent. Shares in Stellantis, Volkswagen and the truck maker Daimler fell more than 6 percent and BMW about 4 percent.
The semiconductor giant Taiwan Semiconductor Manufacturing Company fell more than 5 percent in trading on Monday. Mr. Trump had said on Saturday that he expected tariffs would be placed on chips as well as oil and gas later this month. Shares of the British drinks maker Diageo dropped more than 3 percent, as it has a substantial business importing Mexican tequila and Canadian whiskey. On Monday, crypto markets were also hit by a broad-based move away from so-called risky assets.
Over the weekend, Mr. Trump followed through on his promise to impose tariffs of 25 percent on Canadian and Mexican goods, except for Canadian energy products, which will be levied at 10 percent. Mr. Trump also imposed a further 10 percent tax on goods from China. They are set to go into effect on Tuesday.
Brent crude oil, the international benchmark, rose 1.5 percent. Prices for U.S. crude also rose about 2.5 percent.
So far, Mr. Trump has not imposed direct tariffs on Europe but over the weekend repeated that it will “definitely happen.”
In the United States, the prospect of retaliation setting off a full-scale tariff war has heightened fears among investors and economists that the inflationary pressure that dogged the economy in the aftermath of the pandemic could swiftly return.
Shortly after Mr. Trump’s weekend announcement, leaders in Canada and Mexico said they would respond by placing retaliatory tariffs on U.S. goods. The peso and Canadian dollar both declined as the U.S. dollar strengthened.
Worries about a reigniting of inflation helped push up the yield on two-year Treasury bonds, which is sensitive to changes in interest rate expectations.
“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 for the consulting firm EY-Parthenon.
The initial reaction from China, which as a big exporter could be damaged more than the United States in a global trade war, was cautious: The Ministry of Commerce said it would challenge the tariffs at the World Trade Organization.