Canada, China, Mexico Hit Back in Trade War

Canada and Mexico vowed to hit back at the US after President Donald Trump followed through on threats to impose 25% tariffs on imports of their goods, instigating a trade war that's set to reshape global supply chains.

- Bloomberg

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Canadian Prime Minister Justin Trudeau said the country will impose 25% tariffs against C$155 billion ($106 billion) of US goods, while Mexican President Claudia Sheinbaum also pledged retaliation. China vowed "corresponding countermeasures" to Trump's 10% levy on Chinese products, without immediately announcing any new tariffs.

A tit-for-tat tariff fight among the world's major economies - Trump has warned Europe that it's in his crosshairs, too - adds fresh headwinds to the outlook for global growth, for profits of companies suddenly facing higher import taxes and for financial markets adjusting to new trade flows.

"It marks a new phase of the trade war, which targets multiple countries, including allies and China, to meet US economic and geopolitical policy goals," said Gary Ng, senior economist at Natixis SA.

Bloomberg Economics estimated that Trump's move will raise the average US tariff rate to 10.7% from near 3% currently and "deal a significant supply shock" to the domestic economy. US gross domestic product would suffer a 1.2% hit and a widely watched gauge of core inflation would increase by 0.7%.

The weekend announcement meant the reaction from financial markets would have to wait until Monday in Asia. The risk of a trade war has helped fuel a rally in the dollar since Trump's re-election on the assumption tariffs would fuel inflation and thus support US interest rates, as well as the greenback's safe-haven status.

Trump's threats last week drove the Bloomberg Dollar Spot Index up nearly 1%, its steepest climb since mid-November. The Mexican peso and the Canadian dollar each slumped.