Trade War Fears Rise as Trump Plans Tariffs on China, Mexico, and Canada

The U.S. dollar surged as traders sought safety, gaining 1% against the Mexican peso, 1.4% against the Canadian dollar, and 0.2% versus the offshore Chinese yuan. The dollar’s rise was underscored by concerns about economic fallout in Mexico and Canada, where exports to the U.S. account for 83% and 75% of total trade, respectively.

“The dollar is strengthening on Trump’s aggressive stance, and we expect further gains as tariff fears persist,” said Carol Kong, strategist at Commonwealth Bank of Australia.

Equities tied to global trade fell sharply. Automakers bore the brunt of the selloff, with Stellantis NV dropping 5.8% due to its reliance on Mexican production. In Asia, stock markets broadly declined, while Europe’s Stoxx 600 fell 0.7%. China’s yuan weakened to a four-month low, with Goldman Sachs’ Kinger Lau forecasting Beijing will respond with rate cuts and fiscal stimulus to stabilize its economy.

What Are the Economic Implications?

The tariffs threaten to disrupt trade flows and increase costs for U.S. consumers, with analysts warning of significant inflationary pressures. “Tariffs are taxes that hit American wallets,” said Tahra Jirari, economic director at Chamber of Progress. “A 25% tariff on Mexico and Canada means higher prices on food, electronics, cars, and even groceries.”

While China’s 10% tariff is less severe than Trump’s earlier threats of 60%, analysts view it as a potential opening salvo. “It’s a softer blow than the market feared, but the risk of escalation remains,” said Naka Matsuzawa, chief macro strategist at Nomura. “China is likely to accelerate measures for economic self-reliance.”

The Peterson Institute for International Economics estimates the tariffs could cost the average U.S. household $2,600 annually, further pressuring consumer spending. Meanwhile, experts suggest Trump’s moves may signal an early renegotiation of the USMCA agreement with Mexico and Canada, previously scheduled for 2026.