On March 4, the United States imposed tariffs on imported goods from Canada, Mexico, and China, causing a drastic market turmoil. The three major U.S. stock indexes plummeted, dragging down Asian stock markets and spreading panic globally.
Economists have pointed out that the escalating trade war has dampened investor confidence, leading to a shift of some safe-haven funds to other markets, exacerbating stock market volatility. Simultaneously, the uncertainty surrounding the Russia-Ukraine conflict has put pressure on European markets, resulting in frequent global capital flows and inevitable market fluctuations.
On March 4, known as “Black Tuesday” on Wall Street, the U.S. stock market experienced a significant downturn. The Dow Jones Industrial Average plummeted 670.25 points, a 1.55% drop, marking a two-day decline of over 1300 points; the S&P 500 index fell by 1.22%, and the Nasdaq Composite index slightly decreased by 0.35%.
The tariff policy directly contributed to the stock market slump. President Trump signed an executive order on March 3 to impose a 10% tariff on Chinese imported goods, adding to existing tariffs, resulting in a total of 20% tariffs on Chinese goods. Additionally, Mexico and Canada are not exempt from a 25% tariff. Following this announcement, the U.S. stock market tumbled.
The widespread bearish sentiment led to massive sell-offs on Wall Street that day: the Dow ended with a 650-point drop, the S&P index recorded its largest single-day decline since December, and the Nasdaq Composite index fell nearly 10% from its peak, entering correction territory.
The stock market downturn in the U.S. triggered a global sell-off. In Europe, the STOXX Europe 600 index dropped by 2.14%; the German DAX index experienced its worst decline in nearly three years, falling by 3.54%; the London stock market slipped by 1.3%; and the Paris stock market fell by 1.9%.
In Asia, the Nikkei and Hang Seng indices plunged by over 2.0% and 1.5% respectively, leading the decline in Asian markets. The Nikkei 225 index fell by 1.2%, and the benchmark Hang Seng index in Hong Kong dropped by 0.28%.
Asian stock markets impacted by the sell-off include South Korea, the Philippines, and Malaysia. Furthermore, markets in Taiwan, Thailand, and New Zealand also experienced around a 1% decline on March 4.
The tariffs imposed by the U.S. on Canada, Mexico, and China have triggered market turmoil worldwide. In response, Sun Guoxiang, a professor at Nanhua University in Taiwan, stated that this phenomenon involves multiple factors but can mainly be attributed to several reasons.
According to Sun Guoxiang, the disruption of the global supply chain is a key concern. In today’s globalized economic system, production and supply chains heavily rely on international cooperation. Tariffs imposed on these three countries may disrupt parts of the supply chain, increase business costs, and impact global production and trade.
Further, market sentiment and investor confidence have been fluctuating. Tariff measures have raised concerns about global economic growth, prompting an increase in risk aversion among investors, driving funds away from high-risk assets towards safe havens like gold and government bonds.
Sun Guoxiang further expressed that global economic growth expectations may decrease. With increasing trade barriers, the pace of global economic growth may slow down, and institutions such as the International Monetary Fund (IMF) might revise down global economic growth forecasts, further undermining market confidence. Thus, although tariffs target specific countries, their chain reactions have affected global stock markets.
David Huang, an economic expert in the United States, emphasized the impact of Trump’s tariff policies on China primarily in the realm of the supply chain. China currently accounts for 20% to 30% of global commodity supplies, with most of its exports concentrated in Europe and the U.S., where the highest profits are derived. Therefore, U.S. tariffs directly affect China’s production and supply chain.
Huang noted that escalating tensions due to the U.S.-China trade war have sparked widespread concerns among investors. The U.S. has not only targeted China but also escalated trade measures against Canada, Mexico, and other countries. This has led assets previously flowing into the U.S. market, such as gold, the U.S. dollar, or other investments, to shift towards other markets, further intensifying stock market volatility. Additionally, Europe faces market fluctuations due to uncertainties surrounding the Russia-Ukraine conflict. In this context, global capital flows have become more frequent, making market volatility inevitable.
Huang further stated that a trade war between the U.S. and China, coupled with the trade measures against Mexico, Canada, and other countries, has made trade relations among the world’s largest economies increasingly unstable, undoubtedly having a significant negative impact on the global economy.
Following the implementation of U.S. tariff measures, China, Canada, and Mexico swiftly announced retaliatory measures.
Canadian Prime Minister Trudeau emphasized during a press conference on March 4 that Canada “will not back down.” The government announced immediate tariffs of 25% on $30 billion Canadian dollars (approximately $20.8 billion US dollars) worth of U.S. goods and plans to impose tariffs on an additional $125 billion Canadian dollars (about $86.2 billion US dollars) worth of American products within 21 days.
Provincial governors in Canada have expressed support for the federal government’s decision and announced complementary measures, indicating future actions within the coming days.
Mexican President Jimena stated that she would announce retaliatory tariffs on U.S. imported products on March 9. During a press conference in Mexico City, she mentioned that the American unilateral decision has affected both domestic and foreign companies operating in Mexico, also impacting Mexican citizens.
The State Council Tariff Commission of China declared that starting from March 10, certain imported goods from the U.S. will be subject to tariffs. This includes a 15% tariff on products such as chicken, wheat, corn, and cotton, while a 10% tariff will be imposed on sorghum, soybeans, pork, beef, seafood, fruits, vegetables, dairy products, and others.
Simultaneously, the Chinese Ministry of Commerce announced the inclusion of 15 U.S. companies on an export control blacklist, involving defense technology sectors like shipbuilding design, artificial intelligence, communications, and aviation. These companies are immediately banned from purchasing civilian and military-related products from China.
This marks China’s second round of retaliatory measures. Following Trump’s announcement in late February to impose a 10% tariff on Chinese goods, Beijing swiftly responded by imposing tariffs on some American products from February 10. This included a 15% tariff on coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, high-displacement vehicles, and pick-ups.
Sun Guoxiang believes that China, Canada, and Mexico’s retaliatory measures are expected to have far-reaching effects on the U.S. and global economy.
He expressed that U.S. export companies, especially in agriculture and manufacturing sectors, may suffer significant losses, facing the risks of reduced orders and income. Additionally, supply chain disruptions could become a major hazard. He mentioned that the economic ties between the U.S. and Canada, Mexico, are deeply integrated, especially in the auto and agricultural fields; mutual tariffs could lead to supply chain disruptions, increase operational costs for companies, affecting production efficiency and profit margins. Moreover, the raise in import tariffs could be transferred to U.S. consumers, driving up prices, further exacerbating inflation, and weakening consumer purchasing power.
Sun Guoxiang also indicated that trade war escalation among major economies could prompt other countries to adopt similar protectionist measures, undermining the stability of the global trade system, leading to a decrease in global trade volume. Simultaneously, the volatility in the market may increase; intensified trade frictions will elevate market uncertainties, dent investor confidence, keep global stock markets in turmoil, thereby dragging down global economic growth.
David Huang added that the U.S. economy can withstand impacts to a certain extent. However, when combined with retaliatory measures from China, Mexico, and Canada, the situation could be different.
He explained that China’s substantial purchases of U.S. soybeans are crucial for the economic well-being of the U.S. Midwest agricultural region. Additionally, medium and small-sized American goods, including clothing, appliances, and furniture, heavily rely on Chinese production, showing high trade dependency between the two nations. Huang believed that achieving self-sufficiency in the electronics, furniture, and clothing sectors between the U.S. and China within the next 5 to 10 years would be challenging. Though short-term alternatives can be sought, this process is likely to drive up prices.
He further stated that a trade war could significantly increase global economic uncertainties. China, Mexico, and Canada’s subsequent announcements of countermeasures indicate that the implementation of tariff policies may not proceed as smoothly as envisioned by Trump, undoubtedly compounding the instability of the global economy.