Trump Implements New Tariffs on Canada, Mexico, and China: Global Trade Impact

Trump Implements New Tariffs on Canada, Mexico, and China: Global Trade Impact

Markets Brace for Economic Disruption as Tariffs Take Effect

Tariffs have been a persistent source of market volatility, and this week, they are once again at the forefront of economic discussions.

On Saturday, President Donald Trump signed an executive order imposing a 25% tariff on imports from Canada and Mexico and a 10% duty on goods from China. The White House has announced that these tariffs are tentatively set to take effect on Tuesday.

Trump had previously warned these nations of a February 1 deadline, urging them to take action to curb the flow of illegal immigration and fentanyl into the U.S. However, just before the weekend, he suggested that these measures would be unavoidable, potentially disrupting trillions of dollars in annual trade.

Economic Impact: Inflation & Federal Reserve Response

Economists have raised concerns that these tariffs could contribute to rising inflation in the U.S., potentially influencing Federal Reserve policy. The Fed has taken a cautious approach to future interest rate adjustments, citing economic uncertainty exacerbated by tariff policies.

Stock markets ended lower on Friday, reflecting investor anxiety over trade tensions. Analysts expect further market sell-offs on Monday as investors react to the new trade restrictions.

Oil Industry Faces Tariff Exemptions and Future Levies

A 10% tariff exemption has been carved out for energy products from Canada, a crucial trade sector between the two nations. According to U.S. Census Bureau data cited by Reuters, crude oil imports from Canada to the U.S. totaled approximately $100 billion in 2023.

Additionally, Trump signaled that his administration is preparing to introduce broader tariffs on oil and natural gas by February 18. This announcement led to a surge in oil prices during extended trading hours on Friday.

Last week, both Brent and West Texas Intermediate (WTI) crude benchmarks experienced declines as market participants feared that rising fuel costs could dampen global economic activity and reduce energy demand.

U.S. Jobs Report: Key Data Expected This Week

Investors will be closely analysing January's U.S. jobs report, set for release on Friday.

Economists forecast that 154,000 jobs were added last month, a drop from December's remarkable 256,000 jobs. Meanwhile, the unemployment rate is projected to remain steady at 4.1%.

Average hourly earnings growth is expected to align with December’s rate of 0.3%, offering further insights into wage inflation and labor market stability.

The employment data will play a crucial role in shaping Federal Reserve policy, as the central bank continues to weigh its approach to interest rate adjustments following multiple rate cuts in 2024.

Tech Sector in Focus: Alphabet & Amazon Earnings Reports

This week, investors will also turn their attention to major tech earnings reports, with Google-parent Alphabet and e-commerce giant Amazon set to reveal their quarterly results on Tuesday and Thursday, respectively.

As seen with Microsoft and Meta last week, analysts will be scrutinizing AI investment strategies in light of competition from Chinese AI start-up DeepSeek. The firm recently introduced a low-cost AI model that claims to rival OpenAI’s ChatGPT while using significantly fewer resources.

Concerns over AI spending have triggered market fluctuations, raising questions about the necessity of billion-dollar AI investments by Silicon Valley’s biggest players.

Other notable tech earnings this week include Qualcomm, chip designer Arm, and ride-hailing giant Uber.

Outside the tech sector, pharmaceutical giants Eli Lilly and Novo Nordisk will release their earnings, with investors paying close attention to updates on weight-loss treatments, a rapidly growing market segment.

Bank of England Expected to Cut Interest Rates

In global economic news, the Bank of England (BoE) will hold its latest policy meeting this week, where it is widely expected to lower interest rates amid concerns over a stagnating UK economy.

Economists predict that the BoE will cut its benchmark rate from 4.75% to 4.5% on Thursday, alongside an update on economic growth and inflation projections.

Since the BoE’s last economic report in November, the UK economy has shown signs of slowing, and inflation indicators have eased. Analysts at Bank of America Securities anticipate an 8-1 vote in favor of a rate cut, citing weaker economic growth and easing labor market conditions.