Trump's tariff roulette: The markets left reeling from trade threats
LONDON, Feb 7 (Reuters) - U.S. President Donald Trump, opens new tab 's ability to swiftly impose, and then delay, tariffs on top trading partners has left world markets swinging one way and then another.
Last weekend, for example, he announced sweeping tariffs on Canada, Mexico and China, and then on Monday he announced one-month delays for Canada and Mexico.
These moves show that the risk of a global trade war that hurts economic growth and fuels inflation remains high.
"The warning shot that has been fired by the White House has confused the world at large," said Tina Fordham, founder and geopolitical strategist at Fordham Global Foresight.
Here's where some hard-hit markets stand almost a week after Trump launched his salvo:
1/ SHAKEN LOONIE
Canada's dollar , has been in the firing line, briefly hitting over 20-year lows before rebounding on the tariff delay, leading to its largest single-day swing in nearly five years.
But the reprieve for the so-called Loonie may not last since the prospect of 25% tariffs remains.
Even if tariffs are avoided, uncertainty could weigh on business activity, keeping Canada on a rate-cutting path.
The loonie ended January down for the fifth straight month, its longest losing streak since 2016; currency volatility remains high. CBA forecasts dollar/Canadian dollar at 1.52 by the third quarter, from 1.44 now.
2/ VOLATILE PESO
Volatility has been embedded in Mexico's currency since last year, when it lost almost a fifth of its value against the dollar .
The tariff threats, direct and indirect, have seen the peso fall as much as 2.2% this year, and also gain as much as 3.5%.
In a scenario of 25% tariffs, Wall Street analysts expect the Mexican economy to fall into a recession. The peso, which ended January at 20.678 per dollar, is seen weakening to as much as 22 or further per dollar according to BBVA.
This would imply a weakening of more than 7% from current levels.
The peso hasn't traded beyond 22 since November 2021.
3/ EURO DOUBLE WHAMMY
Trump says the European Union is next in line for tariffs, keeping the euro under pressure .
It has slid 5% since the U.S. election, one of the biggest fallers among major currencies, briefly hitting $1.0125 on Monday -- the lowest since late 2022.
Nearly one-third of strategists polled by Reuters reckon the euro could fall to $1 within a year as trade uncertainty hurts the economy.
The U.S. is the EU's most important trading partner, with $1.7 trillion in two-way goods and services trade.
Further denting the euro, markets anticipate the European Central Bank will cut rates by around 40 basis points more than the Federal Reserve will this year.
Europe could also be a big loser in a U.S.-China trade war.
"If Chinese goods cannot reach the U.S., they will end up in Europe adding to disinflationary pressure," said George Saravelos, Deutsche Bank's global head of FX research.
4/ CAR TROUBLE
Autos, already pummeled by trade worries, may be in the losing camp - although they too have felt some relief in recent days.
Stellantis (STLAM.MI), opens new tab, which owns the Fiat and Peugeot brands, and Germany's Volkswagen posted share-price falls of more than 7% on Monday before recovering.
European autos share valuations are particularly depressed.
Rivals are also fretting.
Ford CEO Jim Farley reckons the U.S. carmaker could weather a few weeks of tariffs, but prolonged 25% duties on Mexico and Canada "would have a huge impact on our industry, with billions of dollars of industry profits wiped out, and an adverse effect on the U.S. jobs."
Japan's Nissan (7201.T), opens new tab, Toyota (7203.T), opens new tab and Honda (7267.T), opens new tab make some of their most popular U.S. models in Canada or Mexico, so tariffs could hurt them as well.
5/ CHINA SHRUGS
China is the only major trading partner Trump has actually imposed tariffs on, with a limited reaction so far.
The closely managed yuan is slightly stronger than it was right before Trump took office, , and Hong Kong (.HSI), opens new tab and mainland shares (.CSI300), opens new tab are higher.
Bank of Singapore chief economist Mansoor Mohi-uddin believes one reason for this is that China's initial retaliation has been muted, with tariffs on select U.S. exports to China that amounted to just $14 billion in exports last year.
This leaves "the door open for a potential deal between Washington and Beijing to avert a more damaging broader trade war," he said.
U.S. levies on China are also well below the 60% Trump threatened during the election.
China meanwhile has not allowed the yuan to weaken sharply to mitigate the tariff impact. Concern about the damage a weak currency would have on investor confidence, and relations with other trading partners, has prevented Beijing from allowing a significantly weaker yuan, analysts say.
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US tariff turmoil makes Spain's flagship foods seek other markets
It's lunchtime in a bar in the southern Spanish city of Seville. The kitchen is humming with activity, and behind the bar a member of staff pours cold beer from a tap into a another uses a carving knife to cut slices from a large leg of jamón ibérico, or Iberian ham, placing each one on a plate, to be served as an are few more Spanish scenes. And there are few more Spanish products than jamón ibérico, whose unique salty flavour is renowned across the world, and part of a national cured ham industry worth nearly €750m ($850m; £630m) each year in he watches the jamón being carved, Jaime Fernández, international commercial director for the Grupo Osborne, which produces wine, sherry and the renowned Cinco Jotas brand of ham, describes it as a "flagship" national foodstuff."It's one of the most iconic gastronomic products from Spain," he says, pointing out how the pigs used to make the ham are reared in the wild and fed on acorns. "It represents our tradition, our culture, our essence." But jamón ibérico, like products across Spain and the rest of Europe, is facing the threat of trade tariffs imposed by US President Donald was no tariff on Spanish ham exports to the US until April of this year, when a 20% charge on all European imports was suddenly introduced, dropping to 10% pending in May Trump unsettled European exporters again when he said that the tariff for all EU goods could rise as high as 50% if trade talks with Brussels do not come to a successful agreement. The current deadline for this is 9 July."The United States is one of our top, priority markets," says Mr Fernández. "The uncertainty is there, and it complicates our medium-and long-term planning, investments and commercial development."The tariffs, he adds, "pose a threat to our industry." Spain's overall economy is in rude health. The IMF has forecast growth this year of 2.5% – much higher than the other main EU economies – and unemployment is at a 17-year the tariff issue comes as a blow for the country's pork industry, which represents more than 400,000 direct and indirect jobs, and is Europe's for cured ham in the US has grown substantially in recent years, and it has become the biggest importer of Spanish ham outside the the Spanish industry now faces the prospect of having to raise retail prices for US consumers and therefore losing competitivity to local products, or those not subject to the same tariffs. Spain's olive oil sector is in a similar quandary. The world's biggest producer of olive oil, Spain had set its sights on the US as a burgeoning market whose growth was driven by growing awareness of the health benefits of the the the tariff turmoil comes just as Spanish producers and exporters have recovered from a drought that slashed harvests in the south of the country, and sent prices temporarily US represents half of world olive oil consumption outside the is also the country whose imports of the foodstuff from Spain have grown the most in recent years, increasing from approximately 300,000 tonnes per year a decade ago to around 430,000 tonnes, says Rafael Pico Lapuente, director general of the Spanish association of olive oil exporters (ASOLIVA).Much will depend, he says, on the final tariff set for the EU."If there is a 10% tariff which is permanent, without differentiating between countries of origin, it's not going to create a distortion on the international market," says Mr Pico explains that American consumers might have to absorb the extra cost. And although local US producers of olive oil or similar products would gain a competitive edge, their output is small enough for it not to concern the likes of he says it would be "a different story" if Trump introduced higher tariffs for the EU than for competitor olive oil countries outside the bloc – such as Turkey, the world's second-largest producer, or Tunisia, an emerging grower. That scenario, he says, would have a major impact on the world market and Spanish producers. But variations in tariffs between countries or trade blocs would also lead to a certain amount rule-bending and even chaos, according to Javier Díaz-Giménez, a professor of economics at the IESE business school in Madrid. He suggests two of Spain's direct neighbours as a hypothetical example."If Spain has a 20% tariff and Morocco and Andorra have a 10% tariff, all the Spanish products that can go through Morocco or Andorra… will do so."He adds: "They will be first exported to Morocco and Andorra and from there re-exported to the United States with a 10% tariff."And it's going to be really hard to make sure that these olives came from Andorra proper and not from Spain. Is Trump going to do something about that?" For now, Spanish producers and exporters must hold their breath as EU negotiations take place with Washington. For Mr Pico Lapuente, a big cause of concern is the influence – or as he sees it, lack of influence – his sector wields within the European trade bloc."The negotiations representing the EU's 27 countries are carried out by Brussels," he says. "In these negotiations, industrial products have a much bigger influence than food."I wouldn't like it if, in this negotiation, food products like olive oil were used as mere bargaining chips in order to get a better deal for Europe's industrial products. That worries me. And I hope it doesn't happen."A spokesperson for the European Commission told the BBC that in negotiations with the US it will act "in defence of European interests, protecting its workers, consumers and its industries".Jaime Fernández, of the Grupo Osborne, believes his industry could live with the 10% tariff that is currently in place without suffering too much a 20% charge, he says would cause the industry "to reconsider how to accelerate growth in some other markets, which would eventually lead to the relocation of resources from the US".He says his company is already looking at alternative markets in which to invest, such as China, or proven European ham consumers such as France, Italy and Díaz-Giménez says that is the logical response to the current uncertainty."If I was the CEO of any company with a high exposure to the United States… I would have sent my entire sales team to find other markets," he says."And by now, they would have found them. There would be plan Bs and plan Cs, to make sure that we have reduced this exposure to the US."
