US president Donald Trump’s imposition of tariffs over the weekend has sent markets spiralling, with UK markets worried that the country is set to fall into the firing line of the growing trade war.
Over the weekend, the US announced 25 per cent additional tariffs on imports from Canada (non-energy imports at 10 per cent) and Mexico, and a 10 per cent additional tariff on China.
The tariffs, which are due to start on 3 February, will remain in place until a “national emergency” of fentanyl and illegal immigrants entering the country are addressed, said Trump.
“The market has refused to take that threat seriously though, completely under-pricing the risks,” explained Deutsche Bank analysts. “So, this leaves the weekend news as a severe shock.”
“If implemented and prolonged, Canada and Mexico would likely go into an imminent recession and potentially see a bigger shock than Brexit was for the UK,” the analysts added.
Despite not being affected by the tariffs, UK markets have already begun to react badly to the news, with FTSE 100 futures falling 1.4 per cent, according to IG Group.
Asked if he would target Britain, the President said:
UK is out of line but I’m sure that one… I think that one can be worked out.
Trump added however, that Prime Minister Sir Keir Starmer had “been very nice”.
“We’ve had a couple of meetings. We’ve had numerous phone calls. We’re getting along very well.”
Since markets closed on Friday, bitcoin, which recently has begun to closely track the Nasdaq, has fallen almost 10 per cent, dropping back below $100,000.
Meanwhile, the pound has fallen 0.9 per cent against the US dollar, dropping back below $1.23 in value.
The Mexican peso and Canadian dollar have fallen even harder, with the latter falling more than two per cent to its lowest level since 2003.
In response, Canada pledged to institute a 25 per cent tariff on $155bn dollars of US goods, with $30bn set to start tomorrow.
The three countries of China, Mexico and Canada make up around 40 per cent of imported US goods, at around $1.4 trillion, leading the average duty rate on US imports to move from 2.3 per cent to 10 per cent.
However, Goldman Sachs analysts have said that they expected US tariffs on the two countries to be “short-lived”.
The bank has calculated that the 25 per cent tariffs would lead to a 0.7 per cent increase in US inflation, with a 0.4 per cent cut to growth.