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|Trump said the duties would "gradually increase" until "illegal migrants" stop coming into the US through Mexico. (Photo: AFP/Brendan Smialowski)|
Trump's Twitter announcement of a five per cent tariff on all goods from Mexico starting Jun 10 sent shares in automakers with plants in the North American country falling sharply.
Trump said the duties would gradually increase until "illegal migrants" stop coming into the United States through Mexico.
Mexico's under-secretary for North American affairs called the move "disastrous" and vowed to retaliate.
The announcement saw shares in Japanese automakers plunge, with Honda dropping 4.26 per cent to ¥2,651, Mazda plummeting 7.13 per cent to ¥1,061.5, Nissan down 5.31 per cent to ¥734.6, and Toyota slipping 2.84 per cent to ¥6,384.
Tokyo's main index fell 1.6 per cent, while Hong Kong shed 0.8 percent. Shanghai edged down 0.2 per cent and Singapore lost 0.8 per cent. Sydney and Seoul managed a 0.1 per cent gain.
European stocks also tumbled at the open, with London slipping 0.7 percent. Frankfurt shed 1.3 percent and Paris retreated 1.0 percent.
Trump's announcement has put the new North American trade pact between the US, Canada and Mexico at risk - with the agreement still awaiting ratification by the legislatures of the three countries.
In a letter to Trump after the announcement, Mexican President Andres Manuel Lopez Obrador struck a conciliatory tone.
"I express to you that I don't want confrontation," he wrote. "I propose deepening our dialogue, to look for other alternatives to the migration problem."
'MARKETS ARE NERVOUS'
Coming amidst a protracted trade war between the United States and China, the announcement will do little to soothe investors' anxieties.
"A US-China trade deal will be even less likely," said Khoon Goh, head of research at Australia & New Zealand Banking Group Ltd. in Singapore.
"At the end of the day, what's the point of doing a deal if the US can just impose tariffs arbitrarily?"
In recent days China and the US have ramped up their rhetoric, with Beijing accusing Washington of "naked economic terrorism" and Trump dismissing the Asian superpower as "a very weakened nation".
The two sides have not set a date for negotiations to resume in the row that has seen Washington and Beijing slap tit-for-tat tariffs on imports, while Trump's decision to blacklist Chinese telecom giant Huawei earlier this month has added a new dimension to the fractious relationship.
"Markets are getting nervous that we may not see anything constructive on the trade front until the June 28-29th G20 summit, where President Trump and his Chinese counterpart will meet on the sidelines", said OANDA senior market analyst Edward Moya.
"The longer the trade war lasts, the greater the global growth deterioration," he said.
Oil prices fell after a smaller-than-expected drop in US crude supplies, with new data showing US oil production at an all-time high.
"US production appears to be ramping up too quickly to allow inventories to come down much," Moya said.
"Gasoline inventories also posted a strong rise for a second consecutive week, despite the beginning of the summer driving season."
- Key figures around 0820 GMT -
Tokyo - Nikkei 225: DOWN 1.6 per cent at 20,601.19 (close)
Hong Kong - Hang Seng: DOWN 0.8 per cent at 26,901.09 (close)
Shanghai - Composite: DOWN 0.2 per cent at 2,898.70 (close)
London - FTSE 100: DOWN 0.7 per cent at 7,167.24 (open)
Pound/dollar: UP at US$1.2627 from US$1.2613 at 2100 GMT
Euro/dollar: UP at US$1.1151 from US$1.1130
Dollar/yen: DOWN at ¥108.86 from ¥109.61
Oil - Brent Crude: DOWN 90 cents at US$65.97 per barrel
Oil - West Texas Intermediate: DOWN 51 cents at US$56.08 per barrel
New York - Dow: UP 0.2 per cent at 25,169.88 (close)