Global markets brace for chaos ahead of Trump’s tariffs on Canada and China

President Donald Trump’s sweeping tariffs announced over the weekend — as well as the promise of more punishing measures leveled against some of Washington’s closest trading partners— have alarmed allies and spooked markets about what some fear may spiral into a global trade war.

While most world leaders have been circumspect about the levies against Canada, Mexico and China, economists say that consumers across the world will face spiraling prices as the supply chains that move goods among countries become more exposed to political risk and therefore costlier.

Chrystia Freeland, a contender to be Canada’s prime minister, told MSNBC’s “Morning Joe” on Monday that Trump’ actions were a “colossal act of self-harm,” because the measures would also hurt American exporters trying to sell goods to Canada. 

“The fact is, these tariffs are being imposed truly for utterly no reason,” she said. “We think that it is utterly crazy and we’re also really, really angry at you.” 

But responses from most of America’s allies, fearing that they might also be the focus of the Trump administration’s tariffs, have been milder than that of Freeland, although that’s not uncommon for leaders with experience of the president’s negotiating style.

The European Union said that it would “respond firmly” if Trump hits it with tariffs and that it “regrets” the duties he has imposed so far. Japan said it would “carefully examine” the potential impact on global trade.

Independent experts — who do not have to directly do business with Trump for the next four years — have been more plainspoken with their analysis. 

“What was considered to be bluff and bluster from Trump has turned into cold hard reality,” Susannah Streeter, head of money and markets at the British investment platform Hargreaves Lansdown, said in an email Monday. “It’s become clear that Trump’s way of doing business is to sow seeds of chaos and unpredictability to gain domestic political wins.”

Promises kept

Trump’s tariffs which are set to take effect on Tuesday, are hardly a surprise given that the president repeatedly telegraphed them during the 2024 election campaign.

He has long seen trade deficits — countries selling more to the U.S. than they buy — as amounting to subsidies and has consistently cited them in his attempts to get countries to buy more American goods, while also pointing to the illegal immigration crisis at the southern border and the flow of illicit fentanyl that has killed tens of thousands of Americans, as other reasons for imposing them.

Some of the president’s allies — including Treasury Secretary Scott Bessent — had suggested that tariffs would mainly be used as a negotiating tactic to gain favorable deals, rather than a practical policy option.

“The tariff gun will always be loaded and on the table but rarely discharged,” Bessent had written to investors in his Key Square Group hedge fund last year.

This weekend, however, Trump made good on his promise, first announcing Saturday a 25% tariff on Canadian and Mexican goods and a 10% tariff on Chinese ones.

While Mexican President Claudia Sheinbaum said Monday that after a conversation with Trump, the planned tariffs had been placed on hold for a month, other parts of the world are also bracing for similar levies, not least the European Union. 

The E.U.’s trade deficit is an “atrocity,” Trump told reporters in Maryland on Sunday, lamenting that the 27-nation bloc did not “take our cars, they don’t take our farm products, they take almost nothing, and we take everything from them.”.

European response

The E.U. “would respond firmly to any trading partner that unfairly or arbitrarily imposes tariffs on E.U. goods,” a spokesperson for the bloc said in a statement Monday.

The Trump administration “seems to be really following through with the threats,” said Julian Hinz, a research director for trade policy at the Kiel Institute for the World Economy, a German think tank.

Even so, Europe itself is hardly unified on this issue. The bloc’s traditional mainstream political parties have come under pressure from right-wing populists, many of whom share Trump’s antipathy to the system of global trade that — alongside immigration — they blame for eroding jobs in manufacturing and other industries.

But German Chancellor Olaf Scholz defended globalization Sunday, saying that it “has proven to be a great success story that has created prosperity for us all” and “that’s why it’s important that we…