UNCERTAINTY over how long trade tensions will last and the risk of tariffs on other economies could heighten market volatility in the near term, said analysts, after US President Donald Trump made good on his tariff threat.
On Saturday (Feb 1) in the US, Trump ordered 25 per cent tariffs on Canadian and Mexican imports and 10 per cent on goods from China starting on Tuesday.
Markets across the Asia-Pacific tumbled in response on Monday.
Mansoor Mohi-uddin, chief economist at the Bank of Singapore, said in a note: “Trump’s early strike, just two weeks into his four-year term, is likely to hit investor confidence.”
He added that the consensus was that expected US tariffs would threaten the economic outlook only in the second half of this year, after lengthy negotiations first between the US and its main trading partners.
IG market strategist Yeap Jun Rong noted that the uncertainty over how long trade tensions may persist, along with the possibility that additional economies such as the European Union (EU) could also be targeted by US tariffs, may trigger a wave of de-risking across global equities.
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Citing a large trade deficit with the bloc, Trump told reporters on Sunday night that tariffs on the EU “will definitely happen”.
Yeap said: “The pace of escalation (of tariffs) could catch markets off guard as well, with market participants quickly pricing in higher global growth risks into the new week.”
Asia markets were still in negative territory by the close. Hong Kong’s Hang Seng Index fell 0.04 per cent, Australia’s ASX 200 was down 1.8 per cent, Japan’s Nikkei 225 lost 2.7 per cent, and South Korea’s Kospi Composite Index slipped 2.5 per cent.
Taiwan’s Taiex closed 3.5 per cent lower as trade resumed after the holidays. Shares of Taiwan Semiconductor Manufacturing Company lost 5.7 per cent, and shares of Hon Hai Precision Industry closed 8 per cent lower, as investors fled those shares following the rout in the US – notably Nvidia, and some global markets on the shake-up by Chinese artificial intelligence company DeepSeek.
Singapore’s Straits Times Index fell sharply by 1.5 per cent at the open, but pared losses to decline 0.8 per cent, as at Monday’s close, while the FTSE Bursa Malaysia Kuala Lumpur Composite Index closed 0.21 per cent lower.
Mainland China markets remained closed for the Chinese New Year holiday.
Commenting on the tariffs, SPI Asset Management managing partner Stephen Innes said: “This wasn’t a shock – it’s been telegraphed for weeks – but investors will still feel the jolt as markets adjust to a move almost universally seen as damaging to global growth and financial stability.”
Thus far, Canada has hit back with a 25 per cent tariff on US imports starting Tuesday. Mexico also indicated it will impose retaliatory tariffs, without mentioning any rate or products.
Meanwhile, China said that it would file a lawsuit with the World Trade Organization and take necessary countermeasures to safeguard its rights and interests.
“While concrete details are less clear at the current point in time, (this) raises the prospect of a prolonged tit-for-tat trade war,” said Yeap.
Vasu Menon, managing director for investment strategy at OCBC, cautioned that amid uncertainty about Trump’s tariff policies going forward and the response from US’ trading partners, global stock markets could be headed for a period of greater volatility in the coming weeks and perhaps a few months.
He advised investors to tread cautiously in the short term until there is greater clarity, especially with regards to Trump’s tariff and immigration policies.
