Markets Slide As Investors Digest Trump's Tariffs

Getty Images; Chelsea Jia Feng

• US President Donald Trump has ordered tariffs on Canada, Mexico, and China, that will start on Tuesday.
• Investors fear that the tariffs will increase inflation and slow Federal Reserve rate cuts.
• Markets in Asia and US futures fell on Monday, while the dollar ticked up.

Investors are waking up to US President Donald Trump's tariff threats on key trading partners after a brief honeymoon.

On Saturday, Trump ordered 25% tariffs on goods from Canada and Mexico and a 10% tariff on China, which are set to start at 12:01 a.m. ET on Tuesday.

Investors fled from risks following the announcement.

In Asia, Hong Kong's Hang Seng Index was 0.6% lower by midday while Japan's Nikkei 225 index was 2.6% lower. South Korea's Kospi was 3% lower.

China's markets were closed for the Chinese New Year public holidays. They reopen on Wednesday.

US futures were also lower after a week of DeepSeek-related selloffs.

S&P 500 e-mini futures were 2% lower, Dow Jones futures were 1.5% lower, and Nasdaq-100 futures were 2.5% lower.

In the currency market, the US dollar surged, with the Dollar Index gaining 1.2% by 11:15 p.m. ET on Sunday.

The Canadian dollar sank to its lowest in over 20 years.

The euro also plunged as much as 2.3% after Trump said tariffs on goods from the European Union would "definitely happen." Meanwhile, the US dollar rose 2.8% against the Mexican peso.

Cryptocurrencies were broadly lower, with bitcoin down 6.3% over 24 hours and ethereum 20% lower.

The stark shift in investor sentiment comes from the market digesting Trump's transition from talk to action on tariffs.

"Very few people believed he would do it. There was this constant refrain that all the rhetoric was just a 'negotiating tactic,'" Kyle Rodda, a senior financial market analyst at trading platform Capital.com, told Business Insider.

But this is increasingly looking like a "naive rationalization" of Trump's mentality, temperament, and policy direction, Rodda added.

Higher tariffs on imports from key trade partners could drive up inflation in the US — at least in the short term — and contribute to slower rate cuts from the Federal Reserve. US West Texas Intermediate oil futures jumped and were 1.9% higher at 12:58 a.m. on Monday.

Tariffs are a wild card for the global economy.

"The benign global macro outlook — with solid growth, normalising inflation and the tailwind of gradually declining rates in the US and beyond — now looks to be disrupted by one of the well-flagged risks coming into 2025," Goldman Sachs analysts wrote on Sunday.

Businesses, from automakers to agriculture, could be hit hard.

"It's bad for earnings, because it's a squeeze on corporate margins and growth," Rodda said. "It's also bad for valuations because it increases volatility and lowers the odds of a rate cut from the Fed going forward."

Trump said on Truth Social on Sunday that while his tariffs may cause " pain," they would "ALL BE WORTH THE PRICE."

George Saravelos, Deutsche Bank's global head of foreign exchange research, wrote on Sunday that investors who underestimated the impact of Trump's tariffs now need to rethink how they could affect markets.

"The macroeconomic implications of such tariffs are likely to be wide-ranging and materially disruptive, especially outside of the US," Saravelos wrote.