Stock markets fall after US tariffs spark trade war fears

Stock markets around the world fell following the introduction of tariffs by President Donald Trump on goods entering the US from China, Canada and Mexico.

Trump has imposed 25% tariffs on imports from Canada and Mexico, and 20% tariffs against China.

Canada and China announced their own import taxes on US goods, while Mexico is said it had “contingency plans”, sparking fears of full-blown trade war.

The three major stock market indexes in the US sank following the news, while the FTSE 100 index of the UK’s biggest publicly-listed companies opened sharply lower on Tuesday and stock markets in Asia were also down.

Analysts have warned tariffs could push up prices for US households and could also have a knock on effect on consumers across the world, including the UK.

Trump threatened to impose the tariffs, which are a tax added to a product when it enters a country – on Canada, Mexico and China in response to what claims is the unacceptable flow of illegal drugs and illegal immigrants into the US.

But Canadian Prime Minister Justin Trudeau said his country was responsible for less than 1% of fentanyl entering the US and would retaliate with 25% tariffs on $150bn worth of US goods.

“There is no justification for [the US’s] actions…Canada will not let this unjustified decision go unanswered,” Trudeau said in a statement on Monday.

He said Canada would first target $30bn worth of products, and target the remaining $125bn over 21 days.

Any fresh duties Canada imposes will be in place “until the US trade action is withdrawn”, he said, adding that his country would pursue “non-tariff measures” should US tariffs not cease – without specifying what those measures were.

China swiftly announced its own counter measures, which include 10-15% tariffs on some US agricultural goods, including wheat, corn, beef and soybeans. China is the US’s biggest buyer of these goods.

“If the United States… persists in waging a tariff war, a trade war, or any other kind of war, the Chinese side will fight them to the bitter end,” foreign ministry spokesman Lin Jian said.

Before the US tariffs on Mexican imports came into force, President Claudia Sheinbaum said her country had contingency plans.

“In this situation, we need composure, serenity, and patience. We have Plan A, Plan B, Plan C, and even Plan D,” she said.

Sheinbaum said she would speak more about Mexico’s response on Tuesday.

In the US, the Dow Jones closed 1.5% lower and the S&P 500 ended the day down 1.8% on Monday, while in Asia on Tuesday, the Nikkei 225 dropped 1.2% and China’s Hang Seng Index was down 0.3%.

London’s FTSE 100 was lower in early trading while the main stock exchanges in Germany and France also dipped.

Trump has argued tariffs will boost US manufacturing and protect jobs, as well as raising tax revenues and grow the economy.

However, such measures can have detrimental effects on both consumers and businesses – including the ones they set out to protect.

Shoppers can be the ones who bear the bulk of tariffs in the form of higher prices, if they’re passed on, as well as less choice.

Meanwhile, tariffs tend to trigger retaliation from targeted countries, disadvantaging domestic businesses looking to export goods, meaning the measures can ultimately hold back trade, jobs being created and economic growth.

Andrew Wilson, from the International Chamber of Commerce, said: “What we’re seeing is the biggest effective increase in US tariffs since the 1940s – with severe economic risks attached to that.”

“The initial market moves are entirely reflective that we’re now entering into a very risky scenario for global trade and for the global economy,” he told BBC Radio 4’s Today programme

He said Yale University had predicted these measures could cost US households in the region of $2,000 in this year alone.

Ella Hoxha, head of fixed income at Newton Investment Management, told the BBC: “In terms of consumers, you’re more likely looking at, certainly over the short term, increases in prices as companies pass some of those prices onto the consumer.”

Chris Torrens, vice president of the British Chamber of Commerce in China, added: “It’s a huge challenge for British business because of the historical links that the UK and the US have. [We are] Seeing what looks like the dismantling of a transatlantic alliance between the US and Europe.

“But, there is a real sense of hope for a stronger UK-China relationship.”