Trump curbs Chinese investment and proceeds with tariffs on Canada and Mexico

Speaking at a White House press conference, President Trump said the delayed tariffs on Canada and Mexico would go forward next month. The pledge came on Monday after he signed a memorandum telling a government committee to curb Chinese spending on tech, energy, and other strategic American sectors. Both actions are risking an escalation of a potential global trade war, pressuring global market sentiment. 

Trump will proceed with tariffs on Canada and Mexico

"The tariffs are going forward on time, on schedule", Trump responded to reporters when asked if he would proceed with the delayed tariffs on Canada and Mexico. Trump originally announced a plan to impose 25% tariffs on Canada and Mexico, and 10% levies on Canadian oil at the beginning of the month, scheduled to take effect on 4 February. He then delayed it for one month after both countries agreed to tighten their borders to stop illegal migrants and drug trafficking, particularly fentanyl. 

Soon after that, he announced a plan to impose a 25% import duty on steel and aluminium, followed by an executive order to investigate reciprocal tariffs to all the trading partners, both of which may start in April. Canada and Mexico will face compounding tariffs as mentioned, which will have a significant economic impact on both countries. 

A widening US-China trade war

Alongside the announcement of tariffs on Mexico and Canada, he also imposed blanket 10% tariffs on Chinese goods this month, which promopted retaliatory action from the Chinese government. Over the weekend, he proposed fees for the use of commercial ships made in China to curb the country's dominant position in making vessels. 

Last Friday, he signed a memo to direct the Committee on Foreign Investment to curb Chinese investment in the US. The order stated that China is "exploiting our capital and ingenuity to fund and modernise their military, intelligence, and security operations, posing direct threats to United States security". The US will establish new rules "to curb the exploitation of its capital, technology, and knowledge by foreign adversaries such as China to ensure that only those investments that serve American interests are allowed". 

In response, China's Ministry of Commerce said in a statement that the new rules are "very unreasonable" and "will further distort the bilateral investment, benefiting neither the US nor China." It added that China urged the US to "stop politicising and weaponising economic and trade issues", warning it would "take necessary measures to safeguard its legitimate rights and interests". 

Stock markets fall, USD strengthens, gold hits a new high

Investment sentiment soured amid Trump's expansion in tariff and trade threats, with global stock markets mostly lower on Monday. Three US benchmarks, including the Dow Jones Industrial Average, the S&P 500, and the Nasdaq extended a three-day losing streak.

The Chinese stock markets retreated from a month-long rally, with the Hang Seng Index falling from its highest level since February 2022. The index opened sharply lower before rebounding on Tuesday. In contrast, Germany's DAX was exceptional, ending higher on optimism toward the election results. However, the benchmark is likely to see ripple effects from the global markets, with party negotiations looming to form a new government. 

In currencies, the US dollar strengthened from a two-and-a-half-month low level due to risk-off sentiment. The Canadian dollar, the Mexican Peso, and the Chinese Yuan all weakened against the greenback. The euro retreated from the intraday high and ended flat against the dollar. 

Gold hit a new high as haven demand increased amid economic uncertainties. However, a strengthened US dollar may cap its upside momentum, while an overbought signal is likely to lead to a technical correction of the precious metal.