The confirmation of tariffs on Canada and Mexico has been a newsworthy event. The issue is of great concern to financial markets as it relates to the reinstatement of tariffs by US Commerce Secretary Howard Lutnick after the deal has been completed, with 100% of them going into effect on March 4.
The news has once again raised worries regarding trade wars, signaling their probable influence on the economy and, therefore, the fluctuation of stock markets on the international level.
A meeting of the tariff agreement is yet to be convened by President Donald Trump, who has not decided whether to exercise the 25% level he agreed in his election campaign. The unknown nature left individuals both in business and government circles caught at the edge, as they still need to comprehend the potential trade and financial scenarios.
The decision to impose the tariffs was not welcomed by many sectors, they blamed the government for it. This action has been largely criticized with various people arguing that it will lead to the subsequent negative economic effects that will result in retaliatory actions besides propelling a more extensive trade conflict in which businesses and consumers on both sides of the borders might be the losers.
On account of the TA a, the stocks of both Canada and Mexico trade at a weaker exchange rate against the USD. The stocks of the two countries have suffered in response to the announcements. The S&P/TSX composite index of the Toronto Stock Exchange and the S&P/BMV IPC index of Mexico are both in decline as investors try to compute their respective effects on cross-border trade.
Sectors of US that rely heavily on parts with both Canada and Mexico such as automotive and manufacturing are preparing themselves for possible snags in their supply chains. Firms in these areas are going to deal with higher costs, which can, in turn, be passed on to consumers with prices of goods going up.
The recent tariff decision has also caused serious questions about the future of the United States-Mexico-Canada Agreement (USMCA), which became the replacement for the North American Free Trade Agreement (NAFTA) in 2020. The main argument from opponents is that the USMCA is about a tariff against Canada and Mexico whose US may know that it goes against the whole essence of the USMCA and it is possible that the trade pact will lose its benefit.
To avoid potential negative consequences, India’s trade minister, Piyush Goyal, arrived in the United States for the purpose of trade talks and negotiations. The nearness of Trump’s proposed reciprocal tariffs will happen a little later. One of the primary notions of Goyal’s visit that stands out is the readiness of other countries to seek better trade terms with the U.S.
Moreover, the announcement has again started discussions on the feasibility of the protectionist trade agenda. Advocates of this approach are of the opinion that such measures are necessary to protect American businesses and jobs as they enable developing of these businesses and various capacities for a nation; on the other hand, naysayers often argue that trade tariffs are at times not economically beneficial as they lead to higher prices for consumers and cause the overall economy to deteriorate.
As the March 4 implementation date is fast approaching, businesses on both sides of the border are in a hurry to prepare for the potential impact of the tariffs. None of the companies are willing to be left behind in this tug and pull game; some are looking at alternative sourcing options, others are considering moving their production facilities to a new place of location to avoid the extra costs.
Moreover, the tariff situation has become a part of the overall uncertainty complex in a global economic landscape, which is already unstable. Parallel to inflation, the rise of interest rates and geopolitical conflicts, investors are interested in the way the tariff issue evolves and the implication it has in various sectors and markets.
The Imposition of tariffs on the United States is expected to go beyond the North American part of the world. Worldwide supply chains that have Canadian or Mexican parts can suffer from abnormalities, which may result in the whole range of industries and customers being affected. Consequently, this has led to an increase in the demand for a more unified approach towards trade differences.
The passage of time makes the financial markets react negatively. The next few weeks are the deciding ones that will show you the full knowledge of the impacts of the tariffs and whether they will at least be charged the level of 25%. The global capital markets are at a high level of vigilance, as they are able to move quickly towards the new developments in the trade which is in the way of resolution.
