Market Wire: Markets Plunge As Trump Says Tariffs Will Go Ahead

The Canadian dollar and Mexican peso are selling off and risk assets are tumbling after US President Trump said “there’s no room left” for a deal to avert the implementation of tariffs, telling reporters at the White House that the near-universal levies on imports are “all set, they go into effect tomorrow”. Trump had signed executive orders in early February directing US agencies to impose 25 percent import taxes on all imports from Canada and Mexico, except for Canadian energy products, which would be subject to a separate 10-percent tariff. The president has also said that he will apply a 20-percent tariff to imports from China, but it was not immediately clear when that would be implemented.

As recently as an hour ago, markets had assumed that tariffs would not be imposed, or that they would be dramatically watered down.

The loonie is down roughly half a percent, and the peso is off almost three quarters of a percent as traders brace for extensive damage to both the Canadian and Mexican economies. We think both currencies could suffer further weakness—perhaps on the order of two or three percent—if leaders in Ottawa and Mexico City retaliate as expected, and if there are no signs of a thaw in cross-border relations within the coming days.

But the pain hasn’t been limited to the currency markets—the S&P 500 has slipped to Friday’s lows, the Nasdaq is down almost 3 percent, and the VIX volatility index (Wall Street’s “fear gauge”) is ratcheting higher as we go to print—suggesting that investors are preparing for severely-negative second-round effects in American capital markets in the months ahead. A slew of data releases in recent weeks have exhibited the signs of rising fears over the impact that trade disruptions could have on prices, employment, and activity in the world’s largest economy, but—for now at least—the administration appears ready to ignore these warning signals.