President Donald Trump has imposed 25% US tariffs on Mexico and Canada, and doubled those on China from 10% to 20%.
The S&P 500 index, which tracks 500 of the biggest companies in the US, fell for a second day yesterday, ending at 5778.15, its lowest level since November when Trump won the election. The index sat at 6,061.48 a month ago.
In the UK, the FTSE100 was down yesterday after reaching record highs earlier in the week. The index has opened higher today.
Tariffs are taxes charged on goods imported from other countries. The companies that bring the foreign goods into the country pay the tax to the government. Trump views tariffs as a way to protect US manufacturing and correct trade imbalances.
Other leaders see the tariffs as the start of a trade war, with Canadian Prime Minister Justin Trudeau accusing Trump of trying to cause the collapse of the Canadian economy.
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Canada has already hit back with a 25% charge on $30bn of US imports with more wide-ranging reciprocal action planned for the end of the month.
‘Investors hoped Trump would delay tariffs’
Russ Mould, investment director at AJ Bell, said: “Investors were desperately hoping that Trump would delay tariffs on Canada, Mexico and China at the eleventh hour, yet the US president has stuck to his guns and brought them into power. Naturally, the recipients have started to retaliate and that has raised the prospect of a full-blown trade war.
“Investors knew there was a real chance this would happen but quietly hoped it would all go away and simply be Trump having a bark worse than his bite. Not this time around.”
Mould added: “Layered on top is Trump’s decision to pause US military aid to Ukraine showing you’ve got a political leader who is determined to show the world who’s boss.
“Asian and European markets were a sea of red, although the extent of the market sell-off wasn’t as bad as it could have been under the circumstances. One third of the FTSE 100 was in positive territory, led by product certification and testing group Intertek which issued an upbeat set of results, announced a target to achieve higher margins and launched a £350mi share buyback programme.
“The DAX gave up some of its recent gains as automotive stocks slipped on the prospect of being hit by tariffs. Rheinmetall bucked the trend and continued its charge as investors embraced defence stocks, making the sector one of the hot investment areas so far this year.”