Markets slide as Trump’s tariff war escalates

Shares in Europe and Asia slid on Monday after US President Donald Trump followed through on his promise to impose tariffs on Canada, Mexico and China.

The main European stock markets were all down more than 1%, while earlier Japan’s stock market had closed down 2.7%.

The US dollar strengthened on the currency markets, rising to a record high against China’s yuan, while the Canadian dollar plunged to its lowest level since 2003.

Investors are bracing for a turbulent period that could hit the earnings of major companies and dent global growth.

Canada and Mexico are facing tariffs of 25% on their exports to the US. Chinese-made goods will face a 10% levy, in addition to existing tariffs.

Canada and Mexico have said that they will hit back with retaliatory tariffs while China promised “corresponding countermeasures” and vowed to challenge Trump’s move at the World Trade Organization.

Trump has said the tariffs are necessary to halt the flow of illegal drugs and immigration into the US.

The US president has also said tariffs on the EU will “definitely happen”, although he says while the UK is “out of line”, a deal could be worked out.

“Investors are rattled at the prospects of a full-blown trade war breaking out,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown, adding they were “buckling up for a rollercoaster ride for the global economy”.

Shares in carmakers saw the biggest falls in Europe, with the sector set to be most at risk from disruption from the tariffs.

Stellantis – whose brands include Chrysler, Citroen, Fiat, Jeep and Peugeot – saw its shares drop by nearly 6%, while VW dropped 5.7%.

Shares in drinks maker Diageo – which exports tequila from Mexico to the US – fell 3%.

The tariffs announced by the Trump administration over the weekend target the United States’ three largest trading partners.

Chief investment strategist at investment bank Saxo, Charu Chanana, warned that while tariffs could be beneficial for the US economy in the short term, in the long run they pose significant risks.

“Repeated use of tariffs would incentivise other countries to reduce reliance on the US, weakening the dollar’s global role,” she added.

Trump has said he will speak to Canada and Mexico’s leaders on Monday about the tariffs which are due to come into effect at midnight on Tuesday.