Trump’s Reciprocal Tariffs: Impact on the Market and Key Currencies 

Markets have experienced choppy, two-way price action in response to US President Trump’s reciprocal tariffs imposed on Canada, Mexico and China. These are potentially bigger in speed, scope and breadth than expected and initially saw the dollar strengthen and the yen outperform on safe haven demand. Risk markets sold off, including stocks and growth-sensitive currencies like AUD and NZD. 

Volatility was heightened and “headline havoc” was in full effect with an agreement struck later in the day for a one-month delay to Mexican tariffs and after the US close, to Canadian tariffs too. Souring sentiment and concerns over the impact on global growth have driven markets, with retaliatory measures sparking the initial moves. Markets are now alert for any other signs of agreement on more delays to tariff implementation, as well as other possible new tariff announcements.   

Key Points 

• Trump’s reciprocal tariffs caused market volatility, boosting the USD and safe havens while hurting risk currencies. 
• Currency moves reversed after tariff delay agreements with Mexico and Canada. 
• Long-term tariffs risk global growth, higher US inflation, and shifting trade dynamics. 

Timeline of Trump’s Reciprocal Tariff Policies 

11 April 2025 ^[1]

• China Raises US Import Tariffs to 125%: China raises its levies on US goods to 125% from 84%.

10 April 2025 ^[2]

• US Confirms 145% Tariffs on China: The White House clarified that the 125% tariff on Chinese imports is in addition to an existing 20% levy on fentanyl producers, raising the total to 145%.

9 April 2025 ^[3,4]

• Trump Announces Additional 21% Tariffs: In response to China’s 84% tariff on US goods, Trump raised tariffs by 21%, bringing the total to 125%.
• China Increases Tariffs on US Goods to 84%: China hiked tariffs from 34% to 84% after the US after the US’s 104% on Chinese goods took effect.

8 April 2025

• 104% Tariffs Officially Take Effect

7 April 2025 ^[5]

• US Threatens Additional 50% Tariffs Against China: Donald Trump has warned of a 50% tariff on Chinese imports if Beijing does not remove its 34% counter-tariff — a move that would raise the total tariff to 104%. The announcement spooked investors, sending the Hang Seng China Enterprises Index down over 13% and weakening the offshore yuan by 0.35% to 7.3212 per dollar.
• Record Trading Volume: Volume hit a 18-year high at 29 billion shares, surpassing Friday’s 26.77 billion and the 10-day average of 16.94 billion.
• US Index Performance: Dow Jones dropped 0.91% to 37,965.60, S&P 500 fell 0.23% to 5,062.25, nearing bear market territory and Nasdaq gained 0.10% to 15,603.26 buoyed by rebounds in megacaps like Nvidia and Plantir despite a 5% intraday drop.

4 April 2025 ^[6]

• China Announces Reciprocal 34% Tariffs on US Imports: China will impose a reciprocal 34% tariffs on all US imports from 10 April.

2 April 2025 ^[7,8]

• Trump’s 10% Base Tariffs Hit Imports: A new 10% baseline tariff will apply to most imports starting on 5 April. Higher reciprocal tariffs for around 60 countries will come into effect from 9 April. These include China (54%), the EU (20%), and Japan (24%), aimed at reducing their large trade imbalances with the US.
• US Tariff Rates Spike: Average import taxes surged from 2.5% (2024) to 22%, reversing decades of trade liberalisation.
• Markets React: Investor sentiment took a sharp turn after Trump’s tariff announcement. Dow futures plunged 2.5%, S&P 500 futures dropped 3.6%, and Nasdaq-100 futures fell 4.5%.

26 March 2025 ^[9,10]

• Trump Imposes 25% Tariffs on Auto Imports: The US will impose a 25% tariff on non-US-made cars and light trucks, up from the current 2.5%, effective 2 April, with collection starting 3 April.
• Tech Sector Leads Declines: Chipmakers led tech sector losses, with Nvidia sliding nearly 6% and Broadcom falling almost 5%. The Philadelphia Semiconductor Index dropped 3.3%.
• Key Indices Close Lower: The S&P 500 fell 1.12% to close at 5,712.20. The tech-heavy Nasdaq lost 2.04%, while the Dow slipped a more modest 0.31%.

6 March 2025 ^[11,12]

• Trump Delays Tariffs on Canada & Mexico USMCA-Compliant Goods: The US has temporarily exempted certain Mexican and Canadian imports from tariffs, covering around 50% of goods from Mexico and 38% from Canada. This exemption will expire on 2 April.
• US Market Declines: Trump’s one-month tariff extension on USMCA-compliant goods failed to boost markets, with uncertainty dampening sentiment. The Nasdaq fell 2.61%, entering correction territory, while the Dow lost nearly 1% and the S&P 500 dropped 1.8%.

5 March 2025 ^[13,14]

• Trump Announces One-Month Tariff Exemption for Automakers: Hours after tariffs took effect, the White House exempted North American-built vehicles complying with 2020 USMCA rules.
• Automaker Stocks Rally: Shares of major automakers jumped following the exemption announcement, with Ford gaining 5.8% and General Motors rising 7.2%.

3 March 2025 ^[15,16]

• Trump Confirms 25% Tariffs on Canada and Mexico: Trump announces 25% tariffs on Canada and Mexico, effective from 4 March, stating that there is “no room left” for further negotiations with the US’s neighbouring countries.
• US Stocks Fall: Trump’s comment sparked a sell-off in US stocks, with the S&P 500 falling 1.76%, the Dow Jones losing 1.48%, and the Nasdaq Composite sliding 2.64% by the market close.
• Metal Prices Rises: Gold futures rose 1.9%, silver futures jumped 2.6%, and copper futures gained 1.4%, now up 15% year-to-date.

10 February 2025 ^[17] 

• US Imposes 25% Tariffs on Steel and Aluminium: Trump reinstates 25% tariffs on steel and aluminium imports, removing exemptions for allies like Canada, Mexico, Japan, and South Korea. The tariffs, effective 4 March, aim to counter foreign subsidies and protect US steelmakers. 
• Reciprocal Tariff Policy: Trump announced plans to impose tariffs on all trading partners at the same rate they charge US goods. Administration officials have not confirmed whether these tariffs will be in addition to the newly announced steel and aluminium duties. 
• Industry Reactions: American steel producers welcomed the tariffs, with stocks rising for US Steel (NYSE: X), Cleveland Cliffs (NYSE: CLF), and Nucor (NYSE: NUE). However, manufacturers warned that higher input costs could lead to increased prices for consumers. 
• Future Tariff Expansions: Trump indicated that further tariff actions on semiconductors, cars, and pharmaceuticals could follow in the coming weeks.

4 February 2025 ^[18] 

• US Tariffs on Canada and Mexico: President Donald Trump agreed to delay imposing 25% tariffs on Canada and Mexico for 30 days. This decision followed last-minute calls with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum. Both leaders agreed to reinforce their borders with the US to address migration and drug trafficking issues. 
• US-China Trade Tensions: A 10% US tariff on Chinese imports took effect, prompting China to impose retaliatory tariffs on American products, including coal, liquefied natural gas, crude oil, and agricultural machinery. 
• Canada’s Border Security Plan: Canada announced a $1.3 billion border security plan, including nearly 10,000 frontline workers and enhanced coordination with US law enforcement to combat the flow of fentanyl. 
• Mexico’s Border Reinforcement: Mexico agreed to deploy 10,000 National Guard troops to its northern border in exchange for the US limiting the flow of guns into Mexico. 

1 February 2025 ^[19] 

• New Tariffs Imposed: President Donald Trump imposed new tariffs on Canada, Mexico, and China on February 1, 2025. The executive order included a 25% tariff on imports from Canada and Mexico (excluding Canadian oil and energy products, which faced a 10% levy) and an additional 10% tariff on Chinese imports. 
• Retaliatory Measures: Canada responded with 25% tariffs on US goods such as alcohol, clothing, household appliances, and lumber. Mexico initially planned similar retaliatory tariffs but later reached an agreement for a delay.   

How Reciprocal Tariffs Affect Global Currencies 

Predictably, the US dollar surged while the CAD and MXN tumbled on fears over a slowdown in growth and possible recessions in Canada and Mexico. Other currencies in the firing line included the AUD and NZD, close proxies of the Chinese and global economy.  

The euro also gapped lower as Trump lines up tariffs on eurozone imports. The yen was the relative outperformer as it benefitted from safe haven demand, along with the Swiss franc, though that is tied closely to the eurozone. 

Reversals to these moves came late in the day as agreement on delays to tariffs was reached. In fact, the CAD closed in the green on the day, while other majors closed their initial gaps to also close in positive territory.  

The Link Between Tariffs and Exchange Rates

Tariffs influence exchange rates by altering trade flows and affecting the demand for currencies. These levies can favour a stronger domestic currency by reducing imports and improving the trade balance. A positive trade balance increases the demand for the domestic currency in international markets. 

Here’s what typically happens: When a country imposes tariffs on imports, it often reduces the volume of goods coming into the country. This can reduce the demand for foreign currency. This is because fewer imports mean fewer payments to foreign suppliers. In turn, this drop in demand can lead to a stronger domestic currency relative to the foreign currency. 

For example, if the United States imposes high tariffs on goods from Canada, US businesses may purchase fewer goods from its neighbour. Consequently, there will be less demand for CAD, potentially weakening it when compared with the USD. However, retaliation by Canada, such as imposing tariffs on US exports, could create counterbalancing effects. 

Reciprocal Tariffs’ Impact on Trade Balances and Currency Valuation 

In simple terms, reciprocal tariffs are taxes imposed on goods (not services) imported from other countries. These levies are most commonly charged as a percentage of the product’s value. For example, the 25% tariff on goods shipped from Canada and Mexico means a product in the US that costs $40 will face an additional $10 charge. 

Tariffs are used by governments to protect domestic industries from external competition and correct trade imbalances. They can then influence exchange rates and currencies as they may reduce imports from a particular country, which causes the country’s currency to depreciate as demand for its currency declines. 

Of course, it should be noted that exchange rates depend on numerous factors. 

Case Studies: Currency Movements During Trump’s Tariff Announcements 

Currencies have been volatile since the February weekend announcement of tariffs. Risk-off sentiment saw those currencies tied to global growth suffer while safe havens were bid. But after the US session opened, the deal between Mexico and the US saw a reversal of these moves and downside gaps after the initial opening were filled.  

The late Canada deal further extended these moves. If tariffs are avoided or delayed further, there might be no change to the broader economic outlook. USD may fluctuate based on how markets price in tariff-related risks.  

USD Trends 

The dollar has been in a strong uptrend since September 2024, rising significantly and hitting two-year highs in mid-January. In fact, the greenback’s inflation-adjusted exchange rate was at its highest since 1985.  

US exceptionalism had been a key market theme in 2024. And given the new administration’s policy mix of tariffs, immigration controls, fiscal stimulus and deregulation – allied to an already strong US economy and FOMC on policy pause – few investors have stood in the way of King Dollar’s rally.   

Effects on the other currencies 

Currencies sensitive to global growth and commodity-dollar currencies like AUD and NZD, known as risk-on currencies, were initially sold strongly as worries about waning worldwide economic activity hit sentiment.  

Outperformers were the more defensive, safe haven currencies like the Japanese yen and Swiss France. Meanwhile, the euro was sold relatively aggressively as it is seen next in the firing line for fresh Trump tariffs.  

Potential Long-Term Currency Impacts of Tariff Policies 

Many economists agree that trade wars do not benefit any party, in what has been described as a “lose-lose situation” for all countries involved. Tit-for-tat measures might see an escalation in responses, which ultimately depress sentiment and economic activity. 

Typically, a portion of the costs of tariffs will be paid by consumers. That means sellers may raise the price of goods they are importing for consumers. This could exacerbate US inflation with some economists suggesting that the rate of inflation might rise significantly. 

In this environment, USD might strengthen, as it did in 2018-2019, as US growth should remain stronger than major trading partners and yield differentials will remain dollar supportive on a less dovish Fed. But an all-out and prolonged tariff war could result in questions over the longer-term implications for US economic growth and trade relationships. On the flip side, much slower growth and possible recessions are forecast for those countries that get hit with tariffs.  

Market Volatility and Investor Sentiment 

Sentiment initially deteriorated severely while volatility quickly picked up as markets tried to make sense of the announcements. The mood turned “risk-off” with stocks getting sold and investors bidding up safe haven currencies. However, the later confirmation that Mexico had agreed to a one-month delay to tariffs caused a reversal in the earlier moves. 

The VIX, a volatility gauge and known as Wall Street’s “fear gauge”, initially moved above its long-term average before settling back below 19 later during the US session. Sentiment remains uncertain with this kind of ambiguity, over the long-term not helping businesses and companies in their investment plans.  

Shifts in Global Trade Dynamics 

The tariffs that were to be imposed on Canada and Mexico were set to dismantle a multi-decade free trade agreement. In sum, one economist reckoned they were roughly five times as large as the cumulative sum of trade actions taken under the first Trump administration, which would be a trade shock far larger than that of Brexit on the UK. 

Recessions were likely in Canada and Mexico with US inflation back above 3% and US growth potentially also lower ^[20]. There would be a similar or bigger growth drag on Asia and China. 

Conclusion: What Traders Should Watch for in the Future 

Uncertainty is high and significant in the current environment. There are so many questions, including how long will tariffs last, will exemptions be granted, what will Trump’s response be, and if these measures will be subject to legal challenges.   

Keeping well informed, following and understanding the latest news is key in these volatile times. Headlines are changing rapidly which means your views need to adjust accordingly if you are a short-term trader. Those who hold positions for a longer timeframe need to figure out any more meaningful implications. News on new tariffs or agreement on extended delays will present opportunities to observe market reactions.  

Stay ahead of market shifts by leveraging real-time data, robust trading tools, and expert insights. Open a live account with Vantage today and start trading. 

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