In recent developments, the market's response to the tariffs imposed by the US on Canada, Mexico, and China has been described as relatively "tepid". According to Scotiabank Economics, this subdued reaction could be attributed to perceived less-aggressive retaliatory actions from the affected nations. US benchmark equity indexes showed weakness during intraday trading following the implementation of 25% tariffs against North American partners and additional duties on Chinese imports.
Despite a defensive posture among global equities, the overall market's reaction has lacked intensity, as noted by Derek Holt, the head of capital markets economics at Scotiabank. He emphasized that "the US has declared economic war on Canada, Mexico, and China," highlighting the serious implications of these tariffs. The measured response from the markets may stem from the nature of the retaliatory measures, which so far have not matched the severity of the US tariff policy.
For instance, China introduced additional 15% tariffs on US poultry, wheat, corn, and cotton, along with a 10% duty on other selected items. In response, Canada announced it would implement a 25% tariff on CA$30 billion (approximately $20.65 billion) worth of US goods, with further tariffs on CA$125 billion planned to follow in three weeks. Holt elaborated, noting that China appears to be signaling a readiness to negotiate, while Canada’s tariffs have not been a direct dollar-for-dollar match to the US actions.
He pointed out that even though Canada matched the 25% duty, it applies to a smaller volume of US imports compared to Canadian exports to the US. Conversely, Mexico's response is anticipated to be unveiled soon, with media sources indicating that President Claudia Sheinbaum will address the situation on Sunday. An additional factor influencing the market's reaction is the timing of these tariffs.
Some economic analysts suggest that the market had already factored in the potential impact following President Donald Trump's earlier proposed tariffs on Canada and Mexico, which had been postponed for a month. This uncertainty raises questions about the longevity of these tariffs. Furthermore, the latest tariff actions are expected to disrupt relationships with America's largest trading partners.
According to insights from Stifel, there may be ripples of effect in supply chains and additional price pressures ahead, with around $1.5 trillion in goods potentially impacted by the tariffs. The economic landscape continues to evolve as these trade dynamics unfold, affecting all stakeholders involved..