Wall Street stumbled on escalating Trump trade war tantrum

·       Gold surged on fading hopes of an imminent Ukraine and Gaza war (2nd Phase) ceasefire, but stumbled with Trump tariffs and counter-tariffs

·       Oil slid as OPEC decided to hike production (theoretically) after 2022

·       BTCUSD plunged from Trump’s ‘crypto strategic reserve’ high amid lack of policy-specific announcement

·       Trump may blink on tariffs after the deluge of retaliatory tariffs

·       Trump may also announce his tax cut policy and further continuation of the 2017 tax cuts

On Friday, Wall Street eventually closed in deep green, with the S&P 500 and Nasdaq-100 adding 1.6% each, while the Dow Jones (DJ-30) gained almost 600 points, led by NVIDIA’s recovery from Thursday’s plunge. Wall Street stumbled on fading hopes of an imminent Ukraine war ceasefire amid the Trump-Zelenskyy war of words, but eventually closed in deep green after Trump’s conciliatory tone for Zelenskyy; in Truth comments and closed in deep green.

Wall Street Futures crumbled in the last few days on Trump trade war tantrum, but were also getting some support on hopes & hypes of an imminent Ukraine war ceasefire after the Rare Earth Materials agreement was reportedly almost finalized between the US and Ukraine, while also keeping European leaders in loop. But on Thursday, the market slid on the wrong foot as Trump indicated Canada/Mexico tariffs of 25% will be effective from 4th March instead of an earlier assumption on 2nd April.

Wall Street was also dragged by Trump’s tech war stance; Despite an upbeat report card, NVIDIA stumbled on Trump’s potential AI chip export restriction to China. Also softer US GDP growth and hotter-than-expected initial jobless claims (after mass firings of Federal employees by Trump & Musk) - dragged the market sentiment as the market is now concerned for an imminent stagflation; i.e. slowing economic activities, higher unemployment, still elevated inflation and stalled disinflation.

On early Friday, Wall Street Futures recovered on hopes of an imminent Ukraine war ceasefire as US President Trump was set to meet his Ukraine counterpart Zelenskyy in a positive mindset after the recent war of words. The market was almost sure about a positive outcome in the meeting over the Ukraine war ceasefire and the Mineral agreement between the US and Ukraine. Gold also slid on the progress of an imminent Ukraine war ceasefire; oil is also under pressure despite OPEC not increasing production from April due to the Trump trade war and policy tantrums.

On Friday, Wall Street eventually closed in deep green, with the S&P 500 and Nasdaq-100 adding 1.6% each, while the Dow Jones (DJ-30) gained almost 600 points, led by NVIDIA’s recovery from Thursday’s plunge. Aso Tesla surged, snapping six consecutive days of losses amid concerns over CEO Musk’s political and austerity stance affecting sales.

On Friday, Gold slumped almost -0.65% and closed around $2857 after making a low around $2832. Gold tumbled over 100 points from 2956 and suffered the biggest weekly drop since November 24 on reducing geopolitical tensions, increasing Trump trade war tantrums, and fading hopes of more than two Fed rate cuts in 2024; USD gained. Oil also lost ground for the week.

Fast forward, Wall Street Futures surged early Monday but soon stumbled after Trump confirmed Canada, Mexico and also China tariffs. Trump confirmed that 25% tariffs on imports from Canada and Mexico will enter into effect Tuesday (4th March 2025). Additionally, the White House said that Trump signed the order to increase import duties on products from China to 20% from earlier 10%.

On Monday (3rd March 2025), U.S. President Trump confirmed that 25% tariffs on imports from Canada and Mexico will take effect from Tuesday (4th March 2025). This decision follows a previous one-month delay intended to allow for further negotiations, which did not meet the administration's expectations. But the US Commerce Secretary Lutnick said Canada and Mexico have done a good job on the border.

The tariffs aim to address issues such as fentanyl trafficking, illegal immigration, and trade imbalances. Both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum have expressed readiness to implement retaliatory measures, including tariffs on U.S. goods. Most Economists warn that these tariffs and counter-tariffs; Trump trade war 2.0 could spur not only US inflation but also global inflation and the overall cost of living. The US is now even asking Canada and Mexico to impose US-like tariffs on Chinese goods so that China can’t export to the US via Canada or Mexico.

In response to the tariffs, companies such as Honda are adjusting their production strategies. Honda plans to shift the production of its next-generation Civic model from Mexico to Indiana by May 2028 to avoid the new tariffs. These developments mark a significant escalation in trade tensions between the United States, Canada, and Mexico, with potential widespread economic implications. The tariffs could lead to price increases for various consumer goods, including gasoline, avocados, and iPhones in the U.S.

Tariffs on Canada and Mexico: President Trump has confirmed that 25% tariffs on imports from Canada and Mexico will take effect on March 4, 2025. However, there is some uncertainty about whether the full 25% rate will apply to all goods, as Commerce Secretary Howard Lutnick suggested that the specifics could still be negotiated.

Exemptions: Canadian energy imports are expected to face a 10% tariff instead of the full 25%.

Purpose: The tariffs aim to pressure Canada and Mexico into intensifying efforts against fentanyl trafficking and illegal immigration into the U.S.

Retaliation: Both Canada and Mexico have indicated they are prepared to retaliate against the tariffs. In response, Canada has imposed immediate retaliatory tariffs of 25% on $20B or 30 billion Canadian dollars (CAD) worth of U.S. goods, with plans to expand these measures after a 21-day consultation period. A second round of tariffs targeting $86 billion worth of U.S. goods is set to begin in three weeks.

Mexican President Claudia Sheinbaum has also indicated that Mexico is prepared to enact tariffs and other economic retaliatory measures against the United States. While Mexico has not detailed specific retaliatory measures yet, it is expected to follow suit with tariffs on U.S. goods.

China Tariffs: Trump also plans to increase tariffs on Chinese imports by an additional 10%, following a previous 10% increase, bringing the total to 20%.

China's Response: China will impose tariffs ranging from 10% to 15% on U.S. agricultural products like chicken, pork, soybeans, and beef, starting 2nd week of March.

International Responses:

China: Beijing is preparing countermeasures, likely targeting U.S. agricultural products, in response to the increased tariffs

India: Indian Commerce Minister Piyush Goyal has traveled to Washington, possibly to discuss trade implications.

Business Confidence: Canadian businesses have expressed decreased confidence in the U.S. market due to the tariffs; the same is almost applicable to all others including the US; but China is less impacted due to significant diversity and expansion to almost every part of the world, rather than too much dependency on US and Europe.

Trump's tariff policies continue to evolve with significant developments reported in recent weeks: Timeline.

Trump 2.0 has actively pursued an aggressive tariff strategy in his second term, building on promises made during his election campaign. On February 1, 2025, he imposed 25% tariffs on all goods imported from Canada and Mexico (with a 10% tariff on Canadian energy resources) and a 10% tariff on imports from China. These measures, effective as of February 4, 2025, were framed as a response to illegal immigration and the flow of fentanyl into the United States, with Trump asserting that they would hold these countries accountable for their border security commitments.

However, after negotiations with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum on February 3, Trump agreed to a 30-day pause on the Canada and Mexico tariffs, pushing the potential implementation to early March. Despite this pause, Trump later declared on March 3 that there was "no chance" for Canada or Mexico to avoid the 25% tariffs, which took effect on March 4, sending financial markets into turmoil over new trade barriers in North America.

On February 10, Trump escalated his trade agenda by signing an order to impose 25% tariffs on all steel and aluminum imports, eliminating previous exemptions for allies like Canada, the EU, and others granted under the Biden administration. This move, effective March 12, aims to bolster domestic production under a "melted and poured" standard, with Trump calling it "the beginning of making America rich again." Canada and the EU have promised retaliatory measures, with Canadian leaders labeling the tariffs "unacceptable" and the European Commission warning of "firm and proportionate countermeasures."

Additionally, on February 13, Trump signed a Presidential Memorandum directing a country-by-country review to establish "reciprocal tariffs"—matching the duties other nations impose on U.S. goods. This "Fair and Reciprocal Plan" is under development, with a report due by April 1, 2025, suggesting a delay in immediate broad tariff hikes but signaling a long-term strategy to address trade imbalances.

Trump has also floated specific tariffs, including 25% on European cars and other goods, citing unfair treatment by the EU, and has warned of duties on automobiles, semiconductors, pharmaceuticals, and lumber, potentially ranging from 25% to higher rates, with announcements expected by April.

The response from trading partners has been sharp. China accused the U.S. of "tariff pressure and blackmail" on February 28, retaliating with 15% tariffs on U.S. coal and LNG and 10% on crude oil and farm equipment, effective February 10.

Canada announced retaliatory tariffs on March 4, targeting over $100 billion in U.S. goods, including poultry, tomatoes, and honey, while Mexico prepared its "Plan B" response, details of which were set to emerge shortly after March 3. Economists warn that these tariffs could raise consumer prices—potentially by over $800 per U.S. household annually—disrupt supply chains, and risk a broader trade war, with estimates suggesting a 0.3% GDP reduction from the Canada-Mexico tariffs alone, excluding retaliation effects.

Trump remains defiant, framing tariffs as a tool to protect American workers, reduce the trade deficit, and enhance national security, while acknowledging potential short-term "pain" for consumers. His aides are reportedly refining proposals to focus on critical sectors like defense, medical supplies, and energy, rather than universal tariffs, though no final decisions have been confirmed as of March 4, 2025. This narrative reflects a mix of bold action, negotiation tactics, and economic uncertainty as global markets and U.S. allies brace for the fallout.

The narrative surrounding Trump's tariffs and the retaliatory measures from affected countries has escalated significantly, reflecting a rapidly evolving trade war. Trump recently declared there was "no chance" for Canada or Mexico to prevent these tariffs from taking effect as scheduled, signaling his intent to enforce them starting from Tuesday, March 4, 2025.

Trump has also expanded the scope of his tariff plans. He has floated additional "reciprocal tariffs" targeting countries that impose duties on U.S. goods, including a proposed 25% tariff on European cars and other goods from the European Union (EU), as well as tariffs on lumber, forest products, semiconductors, and pharmaceuticals from various nations. These reciprocal tariffs are framed as a response to perceived unfair trade practices, with Trump stating, "If they charge us, we charge them," aiming to mirror the exact tariff rates imposed by other countries on U.S. exports. This policy marks a significant escalation from his first-term trade actions, which included $380 billion in tariffs, primarily against China.

Trump administration has justified these measures as a means to protect American jobs, reduce trade deficits, and pressure countries into addressing U.S. concerns like drug, human trafficking, and border security. Trump has also reinstated and then paused the elimination of the "de minimis" loophole for Chinese goods under $800, indicating flexibility in implementation but a firm commitment to his broader tariff agenda. However, economists warn that these tariffs could raise consumer prices significantly, with estimates suggesting a $1,200 annual tax hike per U.S. household if fully implemented, potentially offsetting benefits from Trump's proposed tax cuts, which he may announce on Tuesday (4th March 25) to minimize the disruptive effect on Wall Street as well as Real Street.

Retaliatory Tariffs: Latest update

The response from affected countries has been swift and robust, with retaliatory tariffs either implemented or poised to counter Trump's actions:

Canada: Initially, on February 3, 2025, Canadian PM Trudeau announced a CA$155 billion retaliatory tariff package against U.S. goods, to be rolled out in two phases: CA$30 billion starting immediately and CA$125 billion after 21 days. This was delayed after a 30-day pause agreement with Trump, but with tariffs now set to take effect on March 4, Canada is expected to proceed with these measures. Targeted U.S. exports include cosmetics, appliances, tires, and precious metals. Trudeau has urged Canadians to boycott U.S. products and redirect tourism domestically, while provinces like Ontario have threatened to halt American alcohol imports. Canada - Ontario Premier Ford also said he would completely halt the export of nickel to the US.

The Canadian PM Trudeau said late Monday:

·       Canada's retaliatory tariffs go into effect at 12:01 am

·       No justification for Trump's tariffs on Canada

·       Canada confirms 25% retaliatory tariffs on US imports if Trump's imposts go into effect

·       Trump tariffs will raise gasoline and electricity prices in the U.S: Canada energy minister

Mexico: Mexican President Sheinbaum has prepared a "Plan B" involving both tariff and non-tariff retaliatory measures, though specifics remain unclear as of date. On February 3, she agreed to deploy 10,000 National Guard troops to the U.S.-Mexico border to delay tariffs, but with Trump's latest stance, Mexico is likely to activate its retaliation. Potential targets include U.S. agricultural, semiconductors and auto parts exports, which constitute significant trade with states like Texas and New Mexico.

On Monday, Mexico’s President Sheinbaum said:

·       We are going to wait and see what happens regarding the potential tariff announcement from Trump

·       We have a plan B, C, D—

·       We will talk about our decisions tomorrow, whatever the decision from the US- we will make our own choice.

·       I don't rule out a phone call with Trump.

·       Coordination with the US government on fentanyl and trade has been very good

·       Mexico has reduced fentanyl trafficking and migration to the US

But on early Tuesday, Mexico’s President Sheinbaum said:

·       There is no reason or justification for the US tariff decision

·       The US government also needs to take responsibility for the opioid crisis

·       We are responding with tariff and non-tariff measures

·       Not our plan to start a trade confrontation

·       I will announce counter-measures on Sunday

·       Mexico took measurable steps to fight fentanyl

China: China responded to the 10% U.S. tariff, effective February 4, 2025, with its retaliatory duties announced on the same day, set to begin February 10. These include 15% tariffs on U.S. coal and liquefied natural gas (LNG), and 10% on crude oil, farm equipment, and select vehicles. China also tightened export controls on critical minerals/rare earth materials (e.g., tungsten, molybdenum) essential for high-tech industries, launched an antitrust probe into Google, and placed U.S. firms like Illumina on its Unreliable Entity List. Beijing has filed a case with the World Trade Organization (WTO) and signaled openness to negotiations, suggesting a measured rather than all-out retaliatory approach.

China Ministry of Commerce (MOFCOM): Statement on US Tariffs:

·       China strongly opposes US tariff measures

·       China Hopes US Will Handle Issue Objectively and Rationally

·       China calls for US to return to dialogues

·       China urges the US to respect the rights, and interests of other nations

·       US Actions Cannot Solve Its Issues

·       China urges the US to withdraw independent tariff actions

·       China restates countermeasures against US tariffs

·       China promises essential steps to protect interests

European Union (EU): Although not yet hit with new tariffs as of March 4, the EU is bracing for potential 25% duties on its exports, particularly cars. European Commission President Ursula von der Leyen (VDL) has warned of "tough negotiations" and readiness to protect EU interests, hinting at reciprocal tariffs if Trump follows through on his threats against the bloc.

Broader Implications

The reinstatement of tariffs on Canada and Mexico today, alongside ongoing tensions with China and looming threats against the EU, marks the beginning of a full-scale trade war. Financial markets have reacted with volatility, reflecting uncertainty over supply chain disruptions and rising costs for goods like automobiles, groceries, and energy. Industry leaders, such as those in the North American auto sector, warn of "paralyzing consequences," with potential shutdowns of U.S. assembly plants and millions of job losses. Economists predict a 0.2% reduction in U.S. GDP and the loss of 142,000 jobs from existing Trump-Biden tariffs alone, with further escalation likely to amplify these effects.

In summary, as of today, Trump’s tariff policy has solidified into a cornerstone of his administration, with tariffs on Canada and Mexico now active and broader reciprocal measures on the horizon. Retaliatory actions from Canada, Mexico, and China are either in place or imminent, setting the stage for a contentious and economically disruptive period in global trade. The situation remains fluid, with potential for further negotiations or escalation depending on responses from affected nations and Trump’s next moves.

On Monday, Trump said after signing the EO of tariffs on Canada, Mexico and China:

·       Tomorrow night will be big (for tax cuts announcement)

·       Reciprocal tariffs start April 2nd

·       25% tariffs on Canada and Mexico to start Tuesday

·       Trump on Ukraine: I will let you know tomorrow night, I don't think the Ukraine minerals deal is dead

·       Will give an update on the Ukraine minerals deal on Tuesday night

·       Zelenskyy should be more appreciative

·       Zelenskyy better not be right about the Ukraine war going on for a long time

·       There's no room left for a deal on tariffs on Mexico and Canada

·       I have not talked about suspending military aid to Ukraine

·       TSMC will build five additional factories in the United States

·       Trump reiterates 25% tariffs on Mexico and Canada

·       Trump reiterates plan to double China tariff to 20% from 10%

·       Trump mentions the yen when talking about tariffs on countries with weak FX

·       I will consider a free trade agreement with Argentina

·       I will penalize countries' weakening currencies with tariffs

·       I will speak with Mexico's President Sheinbaum

·       I don't think China will retaliate too much

·       Further China's tariff depends on retaliation

·       Trump announces $100 billion investment in U.S. from TSMC, calls it 'most powerful company' in world

The White House Trade Advisor Navarro said:

·       Any inflationary impact from tariffs would be second-order small

·       I don't see Trump wavering on this

·       Exporting countries absorb a large share of tariffs

Recent Trump comments in his Truth post:

"To the Great Farmers of the United States: Get ready to start making a lot of agricultural products to be sold INSIDE of the United States. Tariffs will go on external products on April 2nd. Have fun!"

“Europe has spent more money buying Russian Oil and Gas than they have spent on defending Ukraine —BY FAR!”

On Zelenskyy’s comments that the end of the Ukraine war is far far late:

“This is the worst statement that could have been made by Zelenskyy, and America will not put up with it for much longer! It is what I was saying, this guy doesn’t want there to be Peace as long as he has America’s backing, and, Europe, in the meeting they had with Zelenskyy, stated flatly that they cannot do the job without the U.S. – Probably not a great statement to have been made in terms of a show of strength against Russia. What are they thinking?”

“We should spend less time worrying about Putin, and more time worrying about migrant rape gangs, drug lords, murderers, and people from mental institutions entering our Country - So that we don’t end up like Europe!”

Late Monday, Trump halted All Military Aid to Ukraine As the Zelensky Feud intensified, while the Putin-Trump Summit was Being Expedited In the Wake Of Zelensky White House Row.

Conclusions:

China is far ahead of the US in terms of industrial and infra ecosystems. Thus Trump can’t compete with Chinese manufacturing global supremacy by simply imposing tariffs and encouraging domestic inefficiencies. Trump has to invest much more in fragile US infra to compete with mighty China and Make America Great Again!

It may be also very tough to predict whether the present US-Russia ‘Bromance’ will continue or not after President Trump’s 2nd term ends in 2029. Trump is also now interested in having a good competitive relationship with arch-rival China as the two largest economies now contributing almost 50% of the global GDP- also needs each other for prosperity and development.

For most of the US MNCs, China is now the 2nd largest market. Thus corporate America led by Musk & Co (US tech lobby) may not allow Trump 2.0 as Trump 1.0 in terms of trade and tech war. Trump 2.0 may be much more moderate than Trump 1.0 in terms of trade, tech, and cold war with China and also Russia. Trump 2.0 may be much more hawkish with the EU, Canada, Mexico, Japan, and other allies. Trump 2.0 may even abandon NATO in the future.

Europe/EU now has to stand up on its own feet after being dependent on the US for almost 80 years. EU has to build its own military force and foreign policy. Europe now has to make a security deal with ‘mighty’ Russia rather than too much Russia phobia, leading to the Ukraine war. EU also has to accept China as the number one superpower in terms of economy, technology and development and keep good relations for mutual benefit rather than too much dependency on the US, which has no policy stability under Biden and Trump admin.

Bottom line:

For Mexico and Canada, Trump may blink at the last moment citing progress on illegal immigration and the Fentanyl issue. Overall, the Trump trade war may be more harmful to the US economy (as importers) rather than exporters.

Market Wrap:

On early Tuesday, Wall Street Futures slumped 0.6% and the Dow Jones lost nearly 150 points, extending significant losses from the previous session amid an escalating Trump trade war tantrum. The escalating trade war triggered a flight to safety, raising further concerns about the economic impact of the new trade policies, with data such as the ISM Manufacturing PMI already indicating strain on the economy. Traders are now closely watching Trump’s address to Congress today for any clarification on trade and tax cut policy.

On the corporate front, mega-cap tech stocks were mostly lower in premarket trading, namely Microsoft, Nvidia, Amazon, and Alphabet, Tesla slid after data revealed the company’s vehicle sales in China fell by nearly 50% (y/y) in February. Nvidia already plunged on tech war fears early Tuesday. Earlier Intel jumped after NVidia, Broadcom test chips on Intel 18a processor, TSMC to invest $100bn in US chip plants.

Gold surged on fading hopes of an imminent Ukraine and Gaza war (2nd Phase) ceasefire coupled with Trump tariffs and counter-tariffs. Oil slid as OPEC decided to hike production (theoretically) after 2022. BTCUSD plunged from Trump’s ‘crypto strategic reserve’ high amid lack of policy-specific announcement.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold 

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 43850) now has to sustain over 44050 for any further rally to 44250/44400-44500/44800 and 45000/45200-45300/45500 and 45700/45800-45900/46000 in the coming days; otherwise sustaining below 44000, DJ-30 may again fall to 43800/43675-43300/43150 and 42800/42700-42000/41900 in the coming days.

Similarly, NQ-100 Future (20915) has to sustain over 21050 for a further rally to 21300/21500-21700/21850 and 22050/22200-22350/22500 and 22700/23000-23300/23500 in the coming days; otherwise, sustaining below 21000, NQ-100 may again fall to 20900/20600-20400/20150 in the coming days.

Also, technically Gold (CMP: 2855) has to sustain over 2830 for a further rally to 2870/2905-2925/2955 and 2965/2975-3000/3025 and 3050/3075; otherwise sustaining below 2825 may further fall to 2810/2795-2780/2765 and 2745/2725-2695/2665 and further 2635/2600-2585/2560 in the coming days.