Markets Rattled as Trump Imposes New Tariffs

Trump to speak with Canada & Mexico | Trump confirms tariffs on EU are coming

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Updates: Policy/News/Markets
(Pro Farmer)

News/Markets/Policy Updates: Feb. 2, 2025


— Markets rattled as Trump imposes new tariffs. Global stocks plunged while the U.S. dollar surged after President Donald Trump imposed fresh tariffs on Mexico, Canada, and China, triggering retaliatory measures and raising concerns over global trade and inflation. The yields on 2-year U.S. Treasuries rose. The Canadian dollar sank to its weakest since 2003, while the euro extended its decline after Trump said tariffs on EU goods would “definitely happen.” The Mexican peso also saw a substantial decrease, sliding as much as 1.1% against the U.S. dollar. The peso’s decline is particularly notable as it had already experienced its worst year against the dollar since the global financial crisis in 2024. WTI crude oil futures rose to around $73.7 per barrel. Washington’s 10% levy on crude imports from Canada will translate to an extra $3 to $4 a barrel borne by Canadian producers and $2 to $3 by Midwestern consumers, analysts including Daan Struyven and Samantha Dart said in a note. The impact will also eventually spill over to the price of refined oil products elsewhere in the U.S., they added. We will have more on the market impacts in Monday’s Updates.

— Trump and Trudeau to discuss escalating trade tensions. President Donald Trump is set to speak with Canadian Prime Minister Justin Trudeau on Monday morning, Feb. 3, following heightened trade tensions between the U.S. and Canada. This comes after Trump announced 25% tariffs on Canadian and Mexican imports, with a lower 10% rate for Canadian oil and Chinese goods. In response, Canada has imposed retaliatory tariffs on $20 billion worth of U.S. goods, with additional tariffs on $85 billion in imports planned. Mexico has also vowed countermeasures. China says it will take countermeasures and will take the U.S. to the World Trade Organization in trade dispute case. The Trump/Trudeau call is expected to address these trade disputes and seek potential resolutions while reaffirming diplomatic ties.

Of note: The White House also said Trump would speak with Mexico following the U.S. tariff announcement.

— Trump’s tariff strategy: China vs. North American neighbors. President Trump imposed different tariff rates on China compared to Canada and Mexico due to varying policy goals and strategic considerations.

· Existing tariffs on China: Prior to the new 10% tariff, the U.S. had already placed tariffs on $380 billion worth of Chinese goods, ranging from 7.5% to 25%.
· Escalation strategy: The 10% tariff aligns with Trump’s 2024 campaign promises of raising tariffs on China, potentially up to 60%.
· Different policy goals: Tariffs on Canada and Mexico primarily address immigration and drug trafficking concerns, while tariffs on China focus on trade and economic competition.
· Biden’s tariff adjustments: In May 2024, the Biden administration increased tariffs on $18 billion of Chinese imports, including semiconductors and EVs, with rates up to 100%.
· Of note: Before the new 10% tariff, Section 301 tariffs covered nearly all U.S. tariffs on China, significantly impacting trade between the two nations.

— Trump confirms tariffs on EU are coming. President Donald Trump reiterated his plan to impose new tariffs on the European Union, citing trade imbalances and insufficient EU imports of American goods. While he did not provide specifics on timing or scale, he stated they would happen “pretty soon.” The EU has warned it will respond firmly if tariffs are enacted. Trump remained more optimistic about trade relations with the UK, saying issues with Prime Minister Keir Starmer’s government “can be worked out.”

— Canada announced it retaliation move Sunday, releasing a list (link) of 1,256 U.S. goods to be hit Feb. 4 with tariffs of 25% on goods worth $20 billion (C$30 billion), including oranges from Florida, household appliances from Ohio and South Carolina, and motorcycles from Pennsylvania. Then, in 21 days, additional tariffs for goods worth $86 billion (C$125 billion) will come into effect, giving Canadians time to make plans.

A senior Canadian government official said the goal was in part to inflict pain that would mobilize Republican politicians to press Trump to drop the tariffs — a tactic Canada used during the first Trump administration. “This is disrupting an incredibly successful trading relationship,” Kirsten Hillman, Canada’s ambassador to the United States, told ABC’s This Week. “We’re hopeful that they don’t come into effect Tuesday.” She said Canadian officials have been “meeting nonstop” with U.S. border officials, and “it’s hard to know what more we can do.”

Of note: Canadians booed “The Star-Spangled Banner” at NBA and NHL games over the weekend. Several premiers pulled U.S. alcohol from their shelves and said they would restrict procurement opportunities for American firms. Leaders urged a boycott of U.S. goods and called on Canadians to vacation elsewhere.

— Why Canada can’t understand Trump’s reasons for tariffs on them. U.S. Customs and Border Protection agents seized 43 pounds of fentanyl at the northern border in the 2024 fiscal year — which amounted to 0.2% of the fentanyl seized at the southern border. Meanwhile, just 1.5% of migrants apprehended by the agency that year sought to cross from Canada. “Canada has some work to do as far as helping us secure our northern border,” Kristi. Noem, the secretary of homeland security, told NBC’s Meet the Press. “Canada can help us, or they can get in the way, and they will face the consequences of it. …If prices go up, it’s because of other people’s reactions to America’s laws.”

Meanwhile, the White House circulated an email calling the tariffs a “necessary solution” and listing various studies and reports to bolster its view that the levies incentivize U.S. consumers to buy American-made products and create jobs domestically.

— Trump’s trade wars: A gamble with unclear goals. President Trump’s sweeping 25% tariffs on Canada and Mexico mark a dramatic shift in U.S. economic policy, prioritizing dominance over co-operation. Justified as a crackdown on fentanyl and illegal migration, these tariffs could be part of a broader strategy — one that blurs the line between trade, diplomacy, and economic warfare. Unlike his first-term tariffs, which targeted China, Trump’s latest actions hit key allies, disrupting supply chains and risking economic recession in North America. As countries weigh retaliation, the long-term effects could reshape global trade, driving localization over globalization and straining U.S. relations with its closest partners.

— Another perspective on Trump’s aggressive use of tariffs comes from Michael Drury, Chief Economist of McVean Trading & Investment. He writes:

“We see little reason to argue about the effectiveness or need for tariffs. Like the massive money drops associated with Covid — which were embraced by both parties — we think just the initiation of tariffs on allies on Feb. 1 has changed the political fabric. The next government in Canada and the new leaders in Mexico will have to deal with the reality that a transactionally oriented U.S. president — with significant leverage given the current status of the three economies — wants to reset the rules of trade. His leverage was not so great in his first term of office, when USMC — and Phase 1 — were initially negotiated. Since then, world growth has been almost exclusively to the U.S. advantage. Covid enhanced medical research (Advantage U.S). The Ukraine war enhanced defense demand (Advantage U.S.). Technology surged as work from home altered consumer and business behavior (Advantage U.S.). Moreover, most of the financial upside accrued to U.S. markets (Advantage U.S.). Relative to other western nations, the U.S. has significantly outperformed — making its multinationals the dominant force in setting the global agenda.”

— Ag markets reaction to tariffs, from commodity analyst and trader Richard Crow. He writes: “The news for days, weeks, and months will be the U.S. tariffs on Canada, Mexico, and China. The U.S. will undoubtedly levy tariffs elsewhere. While the U.S. does not import much grain and oilseed from Mexico, except for fruits, vegetables, and feeder cattle, the imports from Canada of canola oil, hogs for slaughter, feeder pigs, cattle for slaughter, feeder cattle, and some durum wheat are of more significance. U.S. imports 3 million tons of canola oil, around 6 thousand fat cattle daily, and thousands of hogs. While the numbers may seem small, they could be very significant on the margin. We will not know how the price of commodities adjusts for some time, whether through higher prices in the U.S., lower prices in the exporting country, or a combination of both. On the export front, the U.S. ships large quantities of corn, wheat, beans, and animal products to both countries.Canada has already tariffed U.S. products. Mexico has not announced its retaliation. China is expected to challenge the tariff at the WTO, which will take years. Wire reports note they may use this as a reason not to buy the amount of grains they agreed to. China’s reaction will be significant. The impact on the surface is higher consumer prices for the U.S., and shortages of some things are bound to happen. What is done with petroleum and petroleum products lies large for inflation. Trade disputes and tariffs are bearish for markets and disrupt trade. When surplus grain is produced worldwide, it becomes more of an issue at home. Today, SA is building grain supplies, Russia is building a wheat supply, and demand has shown signs of topping. The U.S. relies on animal and product imports for the livestock market, with a shortage of U.S. animals. The U.S. cannot afford to have fewer animals coming across the border. Meat supplies (hogs and beef) in the U.S.have the making of a significant shortage.”

— Trump backs Fed’s decision to pause rate cuts. President Donald Trump said the Federal Reserve made the right call by holding interest rates steady last week, a shift from his usual calls for lower rates. The Federal Open Market Committee kept rates at 4.25%-4.5%, citing inflation concerns and potential economic pressures from Trump’s policies, including new tariffs and deportation measures. Despite his history of urging cuts, Trump acknowledged the pause was appropriate, though he has previously suggested the president should have influence over Fed decisions.

— Musk’s DOGE team and Treasury access spark controversy. Elon Musk’s Department of Government Efficiency (DOGE) has reportedly gained access to the U.S. Treasury Department’s payment systems under the Trump administration, raising concerns over oversight and potential misuse. Treasury Secretary Scott Bessent authorized this move, granting control over systems that handle $5 trillion annually in federal payments. Musk claims DOGE is eliminating corruption and shutting down payments to certain entities, including a Lutheran charity. The DOGE team discovered, among other things, that payment approval officers at Treasury were instructed always to approve payments, even to known fraudulent or terrorist groups. “They literally never denied a payment in their entire career. Not even once,” Musk wrote on X, the social platform he owns. Critics warn of overreach, lack of transparency, and the impact on government beneficiaries. As scrutiny intensifies, Congress is expected to probe the implications of Musk’s unprecedented influence over federal finances.

KEY DATES IN FEBRUARY

3: USDA Industrial reports on grain crushings, oilseed crushings, cotton use
4: JOLTS report
6: USDA Farm Income forecast
7: January Employment | USDA Ag Trade Data Update
9: Super Bowl
11: USDA Crop Production, WASDE, world market circulars
12: Consumer Price Index report
13: Producer Price Index-FD | USDA outlook reports for several commodities
14: Retail Sales | Valentine’s Day
16: Daytona 500
17: Presidents Day; U.S. gov’t and market holiday
21: Univ. of Michigan Consumer Sentiment | Existing Home Sales | USDA Cattle on Feed
25: Consumer Confidence | USDA Food Price Outlook
27: Durable Goods Orders | GDP | USDA Outlook Forum | Outlook for U.S. Agricultural Trade report
28: Personal Income and Outlays (PCE Price Index) | International Trade in Goods | USDA Outlook Forum concludes

LINKS

Economic aid for farmers | Disaster aid for farmers | Farm Bureau summary of aid/disaster/farm bill extension | 45Z tax incentive program | Poultry and swine line speeds | U.S./China Phase 1 agreement | WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | RFS | IRA: Biofuels | IRA: Ag | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum | Eggs/HPAI | Trump tariffs |