By Suzanne McGee and Dhara Ranasinghe
NEW YORK/LONDON (Reuters) -Global markets are set for a fresh jolt on Monday after U.S. President Donald Trump launched a trade war with sweeping tariffs on Canada, Mexico and China that threaten to undermine economic growth and reignite inflation.
With Mexico and Canada – the U.S.’s top two trading partners – vowing immediate retaliation and China saying it would take “counter measures”, the scene was set for a round of turbulence.
Markets were dealt a blow last week as the emergence of China’s DeepSeek AI model hit tech stocks, and uncertainty around Trump tariffs has weighed on broader markets.
The risk of a global trade war could hurt U.S. corporate profits and pressure inflation, potentially upending U.S. interest rate cut expectations, and further weaken currencies such as the Canadian dollar and China’s yuan.
“I do think the markets are going to react to this,” said Mark Malek, chief investment officer at Siebert Financial in New York. “Until now the market has really been on Trump’s side, but that could change and the market could challenge him for the first time.”
In three executive orders, Trump imposed 25% tariffs on Mexican and most Canadian imports and 10% on goods from China, starting on Tuesday.
Canada said it would respond with 25% tariffs against $155 billion of U.S. goods, beginning with $30 billion taking effect Tuesday and $125 billion 21 days later.
“It’s negative for CAD, MXN and CNH, as well as overall risk,” Nick Twidale, chief market analyst at ATFX Global in Sydney said referring to the Canadian, Mexican and Chinese currencies.
He anticipates sizeable moves in currencies when Asian markets open after hopes for a reprieve were dashed.
Canada’s dollar has been in the firing line in recent days, hitting five-year lows around 1.459 per dollar last week.
Mexico’s peso would suffer a near-12% fall if the U.S. hits the country with 25% trade tariffs, JPMorgan estimated in a note published on Friday. The Mexican peso was trading at around 20.6 per dollar late Friday.
Analysts also expect some kind of selloff in stocks and other higher-risk assets when markets reopen on Monday.
Gene Goldman, chief investment officer at Cetera Financial Group, said the combination of high valuations, the impact of tariffs on inflation and the effects on Federal Reserve policy would contribute to declines.
With the S&P 500 near all-time highs, the index could move 3% to 5% in either direction in the short term, Evercore ISI strategists said in a note.
