Trump’s latest round of tariffs on Canada, Mexico and China has made the international as well as the domestic market jittery, sparking concerns of rising inflation in the US and its ripple effect on the global economy
The global trade war is official now! US President Donald Trump's long-anticipated tariffs on Mexico and Canada are now in effect. From Tuesday, March 4 onward the US will charge 25 per cent tariffs on imports from the two of the US's largest trading partners. In addition, the Trump administration doubled the duties on Chinese goods to 20 per cent.
These tariff actions taken by Trump late Monday have caused major jitters in both the global and domestic markets.
India's benchmark indices opened in the red, with Sensex starting Tuesday's session 268.6 points, or 0.37 per cent, lower at 72,817.34, and Nifty beginning the session below the key 22,000-level at 21,974.45, down 144.85 points, or 0.65 per cent.
With this, Sensex has come down 15.52 per cent and Nifty has corrected 16.4 per cent from their respective record highs in late September 2024.
The correction is far more severe in the broader market compared to the headline indices. Many individual stocks have seen a drawdown of 40-60 per cent. Nifty Smallcap 100 and Nifty Midcap 100 are teetering in the bear territory, as both the indices are trading at discounts of 27 per cent and 22.75 per cent, respectively.
In the US, Dow Jones cracked 1.48 per cent, S&P 500 tumbled 1.76 per cent and the tech-heavy Nasdaq saw an even bigger decline, falling 2.64 per cent.
As of the time of writing, Japan's Nikkei was down more than 2 per cent, Taiwan's benchmark slipped 1.3 per cent, and Hong Kong's Hang Seng fell 1.8 per cent.
European markets are also poised for a negative opening, Futures data showed.
The Canada and Mexico tariffs were initially supposed to take effect in February, but Trump agreed to a 30-day suspension to negotiate further with the two neighbours.
The official reason for the tariffs stated by the Trump administration is to tackle drug trafficking and illegal immigration. However, Trump has also made it clear that the tariffs will only be lifted once the US trade imbalances improve.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, "If Trump tariff policy continues like this and soon starts impacting other countries it will be bad for global trade and the global economy." India, too, will not be spared, he added.
China, Canada and Mexico have already announced retaliatory measures, confirming the trade war.
China's Ministry of Finance has also announced that it will impose additional tariffs to the tune of 10-15 per cent on certain US goods, starting March 10.
Canada's Prime Minister Justin Trudeau, while labelling Trump's action as "unjustified," has unveiled a series of tariffs on US imported goods.
Meanwhile, Mexican President Claudia Sheinbaum took a rather balanced approach, assuring that Mexico is prepared with backup "plan B, C, D," to tackle the tariffs, without giving much details about the plans.
The US President's latest round of tariffs has sparked concerns about inflation and economic disruption within the US.
According to Vijayakumar, there is one factor that will tame Trump and that is the market reaction. “Even mighty Trump cannot influence markets. Tariffs will soon raise inflation in the US and the Fed can turn hawkish. The US stock market, which is now priced to perfection, can suffer a severe correction, even a crash. This outcome, which Trump abhors, can tame him and bring about some sanity and balance in his policies. We don’t know when this will happen,” he said.
“In the near term, there are no chances of a rebound in the Indian market even though valuations are fair. Investors should remain cautious and wait to see how the scenario unfolds."