Donald Trump’s recent threat to impose significant tariffs on imports from Canada, Mexico and China has set off alarms in global financial markets.
The measure, which would include a 25% tariff on products from North American partners and an additional 10% increase on Chinese imports, marks the beginning of a potentially volatile stage for both international trade and the Forex market.
Impact on Forex: a rollercoaster in currencies
The reaction of the currency markets was immediate.
The US dollar rose more than 2% against the Mexican peso and hit a four-year high against the Canadian dollar. This increase reflects investors’ fear of possible trade imbalances and their impact on economies dependent on trade with the United States.
Kamakshya Trivedi, a strategist at Goldman Sachs, expects continued volatility in currency markets over the coming months. Currencies such as those of Mexico and Canada could face further pressure if tariffs are applied, while the dollar could strengthen further as a safe haven.
Tariffs on China could also intensify trade tensions between the world’s largest economies. This would lead to the yuan depreciating, generating significant movements in pairs such as USD/CNY.
Repercussions on the US economy
Although Trump’s stated intention is to protect American industries and reduce the trade deficit, the economic effects could be counterproductive. A stronger dollar would make U.S. exports less competitive, hurting key sectors such as manufacturing and agriculture.
On the other hand, American consumers would likely face higher prices on imported goods, increasing domestic inflation. This scenario could force the Federal Reserve to maintain or even raise interest rates, which in turn would negatively impact economic growth.
The global impact: trade tensions and supply chains
Internationally, the imposition of tariffs could trigger retaliation from affected trading partners, escalating global trade tensions. For example, Mexico and Canada could impose their own tariffs on American products, affecting sectors such as the automotive, agricultural and technology industries.
As for China, an escalation in the trade war could disrupt global supply chains, making goods and services more expensive around the world. Emerging economies, particularly those dependent on exports, would also be vulnerable to fluctuations in currency markets and the secondary effects of the slowdown in global trade.
Image of the Maersk Halifax, on the Central and South America route, recently docked at the Qianwan Container Terminal of the Port of Qingdao in Qingdao, Shandong Province, China.
An uncertain outlook for investors
Strategists at institutions such as Citi and ING warn that underestimating the impact of these tariffs would be a mistake for investors. Although some see these threats as a negotiating tactic, the possibility of them materializing creates uncertainty in financial markets.
Citi’s Luis Costa highlights that tariffs will likely be used as a tool to put pressure on bilateral negotiations, particularly with Mexico, but the short-term impact is already evident in the volatility of the Mexican peso.
For his part, Chris Turner of ING warns that, if tariffs are implemented, currencies such as the Mexican peso and the Canadian dollar could face significantly higher levels of devaluation.
Conclusion: where are we going?
Trump’s return to the political arena and his threats of tariffs are generating changes in global economic and financial expectations. Currency markets will react first to any announcement, while national and regional economies will face challenges such as inflation, loss of competitiveness and lower growth.
Investors should anticipate high volatility, as governments and companies adjust strategies in the face of possible protectionist policies of a Trump 2.0 administration. The impact will depend on whether these threats become concrete measures or remain negotiation tactics.
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