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On Tuesday, we witnessed the US dollar make gains following Donald Trump’s bold promise to slap extra tariffs on goods coming in from Canada, Mexico, and China. This announcement reignited worries about his trade strategies. Early Tuesday, the dollar index, which keeps tabs on a collection of currencies, including the British pound and Japanese yen, climbed by 0.4%. Meanwhile, the Mexican peso took the biggest hit, dropping 1.3% against the dollar, and the Canadian dollar didn’t fare much better, slipping 0.8%.
Initially, the dollar index had fallen approximately 0.6% on Monday after Trump nominated Scott Bessent, a hedge fund manager, for the position of Treasury Secretary. Many investors saw this as a hint that Trump might tone down his more intense policy plans.
However, Trump’s new announcement makes it clear he’s poised to swiftly impose tariffs on China and other nations, according to Jason Lui, who heads Asia-Pacific equity and derivative strategy at BNP Paribas. The president-elect has set out a 10% tariff on China and a hefty 25% on “all products” coming from Mexico and Canada.
Jason Lui commented, “On Monday, the story was that with the nomination of Scott Bessent, there was someone onboard who understood the market dynamics and could temper the extreme policy scenarios.” Yet, by initially targeting Canada and Mexico, Lui speculated this might lead to quicker tariffs on other trade partners.
In reaction, the interest on 10-year US Treasuries nudged up by 0.03 percentage points to hit 4.29%, with yields typically moving in the opposite direction to prices. Analysts over at Standard Chartered crunched the numbers, suggesting that a 1 point hike in US tariffs on China might lead to a 1.5-point drop in Chinese exports to the U.S. from Trump’s earlier term. They projected that a 10% additional tariff on all imports from China could result in about a 15% drop in China’s exports to the U.S. over the next year, trimming China’s GDP growth by 0.4-0.5 percentage points.
Chinese markets seemed relatively calm despite the tariff news. The renminbi slipped just 0.1% versus the dollar. The Hang Seng China Enterprises index—which tracks Chinese companies listed in Hong Kong—showed no change, while the CSI 300 index, comprising Shanghai- and Shenzhen-listed firms, ticked upwards by less than 0.1% during afternoon trading in Asia.
On another note, in the views of Brian Arcese, a portfolio manager at Foord Asset Management in Singapore, there was a sense of relief in Chinese markets with the tariffs being less severe than some had feared. He noted, “It’s mainly due to the 10% tariff proposal, not jumping to a drastic 60%. Although, we’d not rule out potential alterations to these figures in time.”
Elsewhere in Asia, stock markets didn’t have a good day. Japan’s export-heavy Nikkei 225 shed 1.3%, prominently dragged down by semiconductor stocks. Taiwan’s Taiex had a similar fate, losing 1.2%. Trump’s social media post on Truth Social omitted mentions of other countries, yet its impact lingered.
