Trump tariff reality unnerves markets

A look at the day ahead in European and global markets

By Kevin Buckland, Correspondent

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Whatever investors expected from Donald Trump's tariff threats, or from the target countries' responses, they may have ended up with more than they bargained for.

Equity indexes met with aggressive selling in Asia and looked headed for steep drops globally, based on futures prices for the U.S. S&P 500 and pan-European STOXX 50.

U.S. President Donald Trump reacts as he arrives on the South Lawn at the White House in Washington, U.S., February 2, 2025. REUTERS/Nathan Howard

Short-dated bonds sold off, as did pretty much every currency barring the U.S. dollar.

Some investors had expected that Trump would water down his threat of 25% levies on neighbours Canada and Mexico, and possibly put off additional duties on China - or that, if the tariffs went ahead as stated, they would be quietly accepted. But that wasn't how things played out.

The U.S. tariffs, which go into effect on Tuesday, will affect $1.3 trillion of goods, or more than 40% of all U.S. imports.

Canada and Mexico immediately vowed retaliatory taxes, while China pledged to challenge the tariffs at the WTO. The Wall Street Journal reported that Beijing's countermeasures would include promises of more U.S. investment and a commitment to do more to curb exports of fentanyl precursors.

The White House said repeatedly last week that Trump would go ahead with the well-telegraphed punitive levies on Saturday but Wall Street's losses on Friday were only half a percent for the S&P 500.

Fast forward to Monday, and S&P 500 futures are pointing to a tumble of 2%. Europe's outlook is even worse, with STOXX 50 futures sliding 2.4%, which may not be surprising considering Trump said at the weekend that tariffs on the EU will "definitely happen".

In Asia, mainland Chinese markets remain shut until Wednesday for the Lunar New Year holiday but trading resumed in Hong Kong, although shares there fell far less than in many other bourses in the region, including Australia, Japan and especially Taiwan.

The reason mooted by some analysts is that Trump's tariff decision puts the ball in Beijing's court, making investors hopeful for more stimulus.

Graphics are produced by Reuters.

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