WASHINGTON (Reuters) – President Donald Trump said sweeping tariffs that he has imposed on Mexico, Canada and China may cause “short term” pain for Americans, while EU leaders meeting on Monday braced for the possibility that they too will face punishing U.S. trade levies.
Global stock markets and currencies tumbled on concerns over an economically damaging trade war. The pan-European STOXX 600 index fell 1.3% in morning trading, set for its biggest one-day slide this year and futures for Wall Street’s S&P 500 fell 1.4%.
Trump said he would speak on Monday with the leaders of Canada and Mexico, which have both announced retaliatory tariffs of their own, but downplayed expectations that they would change his mind.
“I don’t expect anything dramatic,” Trump told reporters as he returned to Washington from his Mar-a-Lago estate in Florida. “They owe us a lot of money, and I’m sure they’re going to pay.”
He also said tariffs on the European Union would “definitely happen”, but did not say when.
“They don’t take our cars, they don’t take our farm products. They take almost nothing and we take everything from them,” he told reporters on Sunday.
EU leaders were expected to discuss tariffs in Brussels on Monday in the wake of Trump’s comments.
Chancellor Olaf Scholz of Germany, the EU’s largest economy which is very reliant on exports, said the bloc could respond if necessary with its own tariffs against the U.S. but stressed that it was better for the two to find agreement on trade.
Luxembourg’s Prime Minister Luc Frieden, arriving for Monday’s talks, said: “I think tariffs are always bad. Tariffs are bad for trade. Tariffs are bad for the United States.”
EU foreign policy chief Kaja Kallas said there were no winners in a trade war, saying that if one broke out between Europe and the United States, “then the one laughing on the side is China”.
Trump hinted that Britain, which left the EU in 2020, might be spared any tariffs, saying: “I think that one can be worked out”.
TUESDAY DEADLINE
The tariffs on Canada, Mexico and China, outlined in three executive orders, are due to take effect 12:01 a.m. ET (0501 GMT) on Tuesday.
Economists said the Republican president’s plan to impose 25% tariffs on Canada and Mexico and 10% tariffs on China – the United States’ three largest trading partners – will slow global growth and drive prices higher for Americans.
Trump says they are needed to curb immigration and narcotics trafficking and spur domestic industries.
“We may have short term some little pain, and people understand that. But long term, the United States has been ripped off by virtually every country in the world,” he said.
Financial market reaction on Monday reflected concerns about the fallout from a trade war. Shares in Tokyo ended the day down almost 3% and Australia’s benchmark – often a proxy trade for Chinese markets – dropped 1.8%. The mainland China market was shut for Lunar New Year holidays.
The Chinese yuan, Canadian dollar and Mexican peso all slumped against a soaring dollar. With Canada and Mexico the top sources of U.S. crude oil imports, U.S. oil prices jumped more than $1, while gasoline futures rose nearly 3%.
North American companies braced for new duties which could upend industries from autos to consumer goods to energy.
Trump’s tariffs will cover almost half of all U.S. imports and would require the United States to more than double its own manufacturing output to cover the gap – an unfeasible task in the near term, ING analysts wrote.
Other analysts said the tariffs could throw Canada and Mexico into recession and usher in “stagflation” – high inflation, stagnant economic growth and elevated unemployment – at home.
In Europe, economists at Deutsche Bank said they were currently factoring in a 0.5% hit to gross domestic product (GDP) should Trump impose 10% tariffs on the bloc.
NATIONAL EMERGENCY
A White House fact sheet gave no details on what Canada, Mexico and China would need to do to win a reprieve.
Trump vowed to keep them in place until what he described as a national emergency over fentanyl, a deadly opioid, and illegal immigration to the United States ends.
China called fentanyl America’s problem and said it will challenge the tariffs at the World Trade Organization and take other countermeasures, but also left the door open for talks.
Mexican President Claudia Sheinbaum vowed resilience and said she would provide more details on Monday of the retaliatory tariffs she ordered on the weekend. Canada said it would take legal action under the relevant international bodies to challenge the tariffs.
Trade lawyers said Trump could face legal challenges for testing the limits of U.S. laws. Some Democratic lawmakers decried what they called a blatant abuse of executive power, while others warned about rising prices.
Automakers would be particularly hard hit, with new tariffs on vehicles built in Canada and Mexico, burdening a vast regional supply chain where parts can cross borders several times before final assembly.
Shares in Volkswagen, BMW, Porsche, Stellantis, and truckmaker Daimler Truck all fell by about 5-6% in European trading on Monday.
Analysts at investment bank Stifel estimated that 8 billion euros of VW’s revenues would be impacted by tariffs and 16 billion euros of Stellantis.
Trump imposed only a 10% duty on energy products. At nearly $100 billion in 2023, imports of crude oil accounted for roughly a quarter of all U.S. imports from Canada, according to U.S. Census Bureau data.
(Reporting by Jarrett Renshaw in West Palm Beach, Florida; Promit Mukherjee in Ottawa; Kevin Krolicki and Qiaoyi Li in Beijing; Andrea Shalal, David Lawder, Douglas Gillison, Doina Chiacu, Susan Heavey in Washington; Josephine Mason in London; Writing by Andy Sullivan, Doina Chiacu and Sharon Singleton; Editing by Scott Malone, Will Dunham, Sandra Maler, Sonali Paul and Gareth Jones)
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