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With the imposition of President Donald Trump\u2019s planned tariffs on Canada, Mexico, and China set to take effect on Feb. 4, as Reuters reported, the U.S. dollar (USD) has seen relative strength as it climbs in value against other currencies.<\/p>\n
According to CTV News, the Canadian dollar (CAD) tumbled to a 22-year low of 68.13 cents per USD (or 1.4792 per U.S. dollar) on Feb. 3, alongside the news that the United States would be imposing 25% tariffs on Canadian goods \u2014 and a 10% tariff on Canadian energy \u2014 imported into the country.<\/p>\n
The Mexican peso suffered a similar fate (21.2882 per U.S. dollar), a near three-year low, but then rose slightly to 20.481, up 0.95% against the dollar. Meanwhile, the U.S. dollar also gained ground against the Chinese yuan early in Asia\u2019s morning on Monday (ticking upward by 0.36% to 7.3404 yuan in the offshore market, though failing to reach a previous record high of 7.3765 yuan, per Reuters). Mexico also faces a 25% tariff on its goods entering the U.S., while China faces an extra 10% on top of existing tariffs against its exports to the U.S.<\/p>\n
Tensions may settle sooner rather than later, however. According to The National Post, there is hope for an early end to the trade war, as Mexican President Claudia Sheinbaum indicated that she and Trump had reached an agreement, with Mexico agreeing to place 10,000 of its soldiers at border postings over U.S. concerns over the flow of migrants and fentanyl into the country.<\/p>\n
Describing the conversation as \u201cfriendly,\u201d Trump took to Truth Social to post the following:<\/p>\n
\u201cI just spoke with President Claudia Sheinbaum of Mexico. It was a very friendly conversation wherein she agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States. These soldiers will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country,\u201d Trump wrote.<\/p>\n
\u201cWe further agreed to immediately pause the anticipated tariffs for a one month period during which we will have negotiations headed by Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick, and high-level Representatives of Mexico. I look forward to participating in those negotiations, with President Sheinbaum, as we attempt to achieve a \u2018deal\u2019 between our two Countries,\u201d he continued.<\/p>\n
Further, a spokesperson for Prime Minister Justin Trudeau indicated that he and Trump had shared a conversation the morning of Feb. 3, the first time the two had spoken since Trump\u2019s Jan. 20 inauguration. Trump and Trudeau are scheduled to speak a second time later in the day.<\/p>\n
US Dollar Rises, but Stock Market and Bitcoin Both Tumble in Response to Tariffs<\/h2>\n
While the U.S. dollar started an upward trajectory, the same could not be said for the stock market \u2014 or many leading cryptocurrencies, including Bitcoin. Bitcoin fell below $100,000, to a low of $95,279, as a result of the tariff news, per Cointelegraph. The price has since rebounded, as of 11:26 a.m. ET, to $98,856.<\/p>\n
CNBC reported that, as of early morning on Feb. 3, Dow Jones Industrial Average futures were down by more than 600 points, S&P futures tumbled by 1.6%, and Nasdaq-100 futures fell by 1.7%.<\/p>\n
Analysts cited by the outlet suggested that the Trump administration\u2019s tariffs would exert downward pressure on the market while increasing costs to consumers \u2014 but also that they may be temporary in nature.<\/p>\n
\u201cLarge tariffs pose downside risk to our S&P 500 earnings estimates and return expectations. If company managements decide to absorb the higher input costs, then profit margins would be squeezed. If companies pass along the higher costs to its end customers, then sales volumes may suffer. Firms may try to push back on their suppliers and ask them to absorb part of the cost of the tariff through lower prices. We estimate that every 5pp increase in the U.S. tariff rate would reduce S&P 500 EPS [earnings per share] by roughly 1-2%,\u201d said David Kostin, chief U.S. equity strategist at Goldman Sachs.<\/p>\n
\u201cAs a result, if sustained, the tariffs announced this weekend would reduce our S&P 500 EPS forecasts by roughly 2-3%, not taking into account any additional impact from major financial conditions tightening or a larger-than-expected effect of policy uncertainty on corporate or consumer behavior. Our economists describe the outlook as unclear but believe there is a substantial probability that the tariffs on Canada and Mexico will be temporary,\u201d Kostin continued.<\/p>\n
Chris Rupkey, chief economist at FWDBonds, was more concise \u2014 and condemnatory \u2014 in his remarks.<\/p>\n
\u201cWe are stunned after the President\u2019s announcement which is an abrupt retreat from the world as we know it. The stock market will crater on Monday morning with the first trade on the Dow lower by 1,000 points. America first apparently means the rest of the world is last and this announcement could do lasting damage to how America is seen in the rest of the world and turn our allies into adversaries right when the world is in an increasingly dangerous place,\u201d Rupkey stated.<\/p>\n
Canada and Mexico To Impose Retaliatory Tariffs on US Goods, China Taking the Fight to the World Trade Organization<\/h2>\n
In response to the imposition of the most recent U.S. tariffs, Canadian and Mexican leaders vowed retaliatory tariffs.<\/p>\n
Prime Minister Justin Trudeau signaled a two-stage plan in which 25% tariffs would be imposed on certain American exports, The Financial Post reported, with $30 billion in goods being targeted as of Feb. 4, and an additional $125 billion three weeks after.<\/p>\n
\u201cOur response will also be far reaching and include everyday items such as American beer, wine and bourbon, fruits and fruit juices, including orange juice, along with vegetables, perfume, clothing and cheese,\u201d Trudeau said during a Feb. 1 press conference.<\/p>\n
\u201cIt\u2019ll include major consumer products like household appliances, furniture and sports equipment, materials like lumber and plastics, along with much, much more,\u201d he added.<\/p>\n
Sheinbaum took to X on Feb. 1 to state her nation\u2019s intentions.<\/p>\n
\u201cI\u2019ve instructed my economy minister to implement the plan B we\u2019ve been working on, which includes tariff and non-tariff measures in defense of Mexico\u2019s interests,\u201d Sheinbaum wrote. Exact details are yet to be revealed, but a separate CTV News report indicated tariffs ranging from 5% to 20% on various products \u2014 from pork, cheese, and fresh produce to manufactured steel and aluminum \u2014 could be in the cards.<\/p>\n
Finally, as a second Reuters article detailed, Chinese leaders promised to fight the tariffs at the World Trade Organization, while also vowing to take unspecified \u201ccountermeasures\u201d should the tariffs remain in place.<\/p>\n<\/div>\n