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From China to Europe, Canada to Mexico, world markets are already reeling from Donald Trump’s promise to jack up tariffs when he becomes US president in less than two weeks.
Trump has pledged tariffs of as much as 10 per cent on global imports and 60 per cent on Chinese goods, plus a 25 per cent import surcharge on Canadian and Mexican products, duties that trade experts say would upend trade flows, raise costs and draw retaliation.
The scale and scope remains to be seen, but the road ahead is bumpy. Here’s a look at some markets in focus right now.
1/ FRAGILE: CHINA
“China is likely to be the primary target of the Trump trade wars 2.0,” say Goldman Sachs. Investors are already getting ahead, forcing the country’s stock exchanges and central bank to defend a tumbling yuan and stocks.
China’s tightly controlled currency is at its weakest in 16 months, with the dollar trading decisively above the symbolic 7.3 yuan milestone which authorities had defended.
Barclays sees the yuan at 7.5 per dollar by end-2025, and sliding to 8.4 in a scenario in which the US imposes 60 per cent tariffs.
Even without tariffs, the currency has been hurt by a weak economy pushing down Chinese government bond yields—widening the gap with elevated US Treasury yields.
Analysts expect China to let the yuan weaken further to help exporters manage the impact of tariffs, but gradually.
A sudden plunge would bring lurking fears of capital outflows to the fore, and jolt confidence, already bruised after stocks just saw their biggest weekly fall in two years.
Investors in other major Asian exporters such as Vietnam and Malaysia are also nervous.
2/ EURO’S TOXIC MIX
The euro has slid over 5 per cent since the US election, the most among major currencies, to two-year lows around $1.03.
JPMorgan and Rabobank reckon the single currency could fall to the key $1 mark this year, as tariff uncertainty weighs.
The US is the European Union’s most important trading partner, with $1.7 trillion in two-way goods and services trade.
Markets anticipate 100 basis points of European Central Bank rate cuts this year to bolster a lackluster economy. But traders, speculating that tariffs could boost US inflation, anticipate just 40 bps of Fed rate cuts, enhancing the dollar’s appeal over the euro.
A weakening Chinese economy also hurts Europe.
Tariffs hitting China and the EU at the same time could be a “very toxic mix for the euro”, said ING currency strategist Francesco Pesole.