Early indications of the global fallout from President Trump’s decision to impose tariffs on Mexico, Canada and China came on Monday, as stock markets in Asia dropped sharply. Shares in Europe and the United States were poised to open lower.
Japan’s Nikkei 225 index and South Korea’s Kospi each fell more than 2.5 percent. The Taiwan Stock Exchange weighted index slumped more than 3 percent. Markets in mainland China were closed on Monday for the Lunar New Year holiday. Stocks in Hong Kong, where many Chinese companies trade, fell less than 1 percent.
As investors begin to assess the potential fallout from what could be the start of a disruptive trade war, big exporting countries in Asia are likely to be particularly affected. Companies are exposed to the tariffs because they have made sizable investments in North America under agreements meant to facilitate trade.
Some of the biggest share-price declines in Asia on Monday were among Japanese auto manufacturers, which have poured billions into supply chains in Canada and Mexico that could be hit by new taxes. Toyota Motor and Nissan Motor fell about 5 percent in trading on Monday, while Honda Motor slumped nearly 7 percent.
The semiconductor giant Taiwan Semiconductor Manufacturing Company fell more than 5 percent in trading on Monday. Mr. Trump had said on Saturday that he expected tariffs would be placed on chips as well as oil and gas later this month.
Over the weekend, Mr. Trump followed through on his promise to impose tariffs of 25 percent on Canadian and Mexican goods, except for Canadian energy products, which will be levied at 10 percent. Mr. Trump also imposed a further 10 percent tax on goods from China.
In the United States, the prospect of retaliation sparking a full-scale tariff war has heightened fears among investors and economists that the inflationary pressure that dogged the economy in the aftermath of the pandemic could swiftly return.
Shortly after Mr. Trump’s weekend announcement, leaders in Canada and Mexico said they would respond by levying retaliatory tariffs on U.S. goods. The peso and Canadian dollar both declined as the U.S. dollar strengthened.
Worries about a reigniting of inflation helped nudge the two-year Treasury yield, which is sensitive to changes in interest rate expectations, slightly higher.
“Rising trade policy uncertainty will heighten financial market volatility and strain the private sector, despite the administration’s pro-business rhetoric,” said Gregory Daco, chief economist for the consulting firm EY-Parthenon.
The initial reaction from China, which as a big exporter could be damaged more than the United States in a global trade war, was cautious: The Ministry of Commerce said it would challenge the tariffs at the World Trade Organization.
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