President-elect Donald Trump has two months until he takes office, but he’s already dishing out orders — and shaking the markets.
On Monday, Trump took to his Truth Social platform to announce that he would sign an executive order on his first day in office to impose a 25% tariff on all goods from Mexico and Canada and an additional 10% tariff on imports from China.
“This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” Trump wrote.
Economists and analysts are now bracing for more uncertainty from Trump. While Monday’s tariffs announcement marked a new escalation, it’s still unclear exactly when and how the incoming administration would enact these policies.
Trump jolted global markets, but the reaction was ‘benign’
Trump’s announcements surprised global markets, with the Canadian dollar and the Mexican peso losing ground against the US dollar.
On Tuesday, the Canadian dollar closed 0.8% lower against the greenback, while the Mexican peso fell as much as 2.7% to hit a low not seen in over two years.
Over in the equities market, the iShares MSCI Mexico ETF dropped by as much as 3%, while the iShares MSCI Canada ETF fell by about 1%. Major Asian markets were about 1% lower on Tuesday and mixed on Wednesday.
US stocks were muted.
“The equity market reaction has so far been very benign, we would argue likely on the back of the transactional interpretation,” wrote George Saravelos, the global head of foreign exchange research at Deutsche Bank, on Tuesday.
Saravelos was referring to market discussions that Trump’s tariff threats are simply leverage to get what he wants — because that was what he did in his first term.
However, the relatively muted market reaction isn’t a good sign.
“The first Trump administration showed that the more benign the market reaction, the greater the likelihood of further escalation,” wrote Saravelos.
Canada, China, and Mexico are just the “opening move” in Trump’s “global negotiating game” in his second term, Dave Townsend, a partner in the government solutions and investigations practice group at law firm Dorsey & Whitney, told Business Insider.
“There will be many more moves involving many countries, including retaliatory action against US exports to trading partners,” Townsend added.
Companies are front-loading ahead of higher tariffs
Trump is likely to take a far more protectionist approach when it comes to tariffs — one of the few things that the President-elect is consistent on, wrote Nick Marro, the principal economist for Asia and global trade lead at the Economist Intelligence Unit, on Tuesday.
“Trump changes his mind on many things, but tariffs — and tariffs on China, specifically — are one of the key areas of ideological consistency that we’ve seen from him over the past ten years,” Marro wrote.
Marro said companies and investors should think about “how to prepare for the worst.”
Some companies are already thinking ahead and front-loading imports to the US to avoid potentially higher tariffs, wrote economists from Goldman Sachs in a Tuesday analysis of earnings calls and media reports.
“We see risks that the stockpiling boost to imports could be a bit larger and/or more prolonged given the sizable lead time between now and inauguration, particularly if the Trump administration follows precedent and exempts goods already in transit,” they added.
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