US Treasury yields dipped on Tuesday 4 March as markets digest the first day of President Donald Trump’s sweeping new tariffs against China, Canada, and Mexico, with both Beijing and Ottawa swiftly unveiling retaliatory measures.
China and Canada have moved decisively to counter the US tariffs that came into force at midnight US time. Trump’s duties of 25% against goods from Canada and Mexico, and 20% against Chinese imports, will affect more than £722 billion worth of US imports from America’s two biggest trading partners.
Justin Trudeau, the Canadian prime minister, announced immediate 25% tariffs on C$30 billion worth ($20.7 billion) of US imports. Ottawa further warned it would place tariffs on an additional C$125 billion ($86.2 billion) of American goods if Trump’s levies remain in place after 21 days.
“Tariffs will disrupt an incredibly successful trading relationship,” Trudeau said, noting that the US measures violate the US-Mexico-Canada free trade agreement that Trump himself signed during his first term.
China responded by targeting America’s agricultural sector, announcing fresh tariffs of up to 15% on chicken, wheat, corn and cotton imports from the US. Additional 10% tariffs will be imposed on sorghum, soya beans, pork, beef and various other US farm exports.
“The US’s unilateral tariff increase damages the multilateral trading system, increases the burden on US companies and consumers, and undermines the foundation of economic and trade cooperation between China and the US,” China’s finance ministry said in a statement.
Global markets reflected growing anxiety, with Asian indices posting losses after sharp falls in US markets on Monday. Japan’s Nikkei dropped 1.6%, Hong Kong’s Hang Seng declined 0.8%, and European markets also opened lower. The FTSE 100 fell 0.65% to 8,813 points, while France’s CAC 40 dropped 0.9%.
Both the Canadian dollar and Mexican peso fell to their lowest levels in a month. US Treasury yields reflected these tensions, with the benchmark 10-year yield slipping about 1 basis point to 4.168% as investors sought safer assets.
Economists warn that Trump’s tariff strategy could backfire on the US economy. The Peterson Institute for International Economics has described the tariffs as “the largest tax increase in at least a generation”, estimating they would cost the typical US household more than $1,200 annually.
The situation has been compared with the Smoot-Hawley Tariff Act in 1930; with some level of tariff implemented on all countries exporting to the US, and rates up to 80%, it has been credited as exacerbating the Great Depression. As was the case a century ago, American farmers already see their output suffering as tariffs that make products from other nations more competitive.
Trump has signalled this is merely the opening salvo in his trade strategy. Steel and aluminium tariffs are set to take effect on 12 March, with “reciprocal tariffs” expected on 2 April.
