Markets in turmoil as Trump kicks off his trade war

• US President Donald Trump has ordered tariffs on Canada, Mexico, and China, that will start on Tuesday.
• Investors fear that the tariffs will increase inflation and slow Federal Reserve rate cuts.
• US futures, as well as stocks in Asia and Europe, plunged Monday, while the dollar climbed.

Global markets started the week in the red on the first day of trading after President Donald Trump's tariff threats for key trading partners.

On Saturday, Trump ordered 25% tariffs on goods from Canada and Mexico and a 10% tariff on China, which are set to start at 12:01 a.m. ET on Tuesday.

Investors fled from risks following the announcement with stocks first falling in Asia, before the impact spread westwards, hitting European trade. Futures suggested the US would follow suit later in the day.

In Asia, Hong Kong's Hang Seng Index closed little changed after losing as much as 2.3%, while Japan's Nikkei 225 index closed 2.7% lower.

South Korea's Kospi closed 2.5% lower. Australia's ASX 200 closed 1.8% lower.

Taiwan's Taiex index closed 3.5% down in its first day of trade after Chinese New Year public holidays, as chip giant TSMC ended the day 5.7% lower after catching up with DeepSeek-related selloffs last week.

China's markets were closed for public holidays. They reopen on Wednesday.

Markets across the Atlantic also started Monday in the red with the UK's FTSE 100 down 1.2% by 7 a.m. ET. Europe's Stoxx 600 tanked 1.3% after Trump said tariffs on goods from the European Union would "definitely happen."

"I think it's a major shock — that's what markets are telling us this morning," Arancha González Laya, a former Spanish foreign affairs minister told Bloomberg TV.

"It's a breach of trust, which in my view, has geopolitical implications. It's a major economic disruption," she said.

US futures were also lower.

S&P 500 futures were down 1.5%, Dow Jones futures were 1.3% lower, and Nasdaq-100 futures slumped 1.7%.

In the currency market, the US dollar surged, with the Dollar Index gaining just under 1% by 7 a.m. ET.

The Canadian dollar sank to its lowest in over 20 years. The euro was 1% lower.

Meanwhile, the US dollar rose 1.6% against the Mexican peso.

"The hawkish shift in Fed expectation and flight to safety explain why the US dollar is widely in demand," Ipek Ozkardeskaya, an analyst at Swissquote Bank said in a morning email.

Cryptocurrencies were broadly lower, with bitcoin down 4% over 24 hours and ethereum 15% lower.

The stark shift in investor sentiment comes from the market digesting Trump's transition from talk to action on tariffs.

"Very few people believed he would do it. There was this constant refrain that all the rhetoric was just a 'negotiating tactic,'" Kyle Rodda, a senior financial market analyst at trading platform Capital.com, told Business Insider.

But this is increasingly looking like a "naive rationalization" of Trump's mentality, temperament, and policy direction, Rodda added.

Higher tariffs on imports from key trade partners could drive up inflation in the US — at least in the short term — and contribute to slower rate cuts from the Federal Reserve. US West Texas Intermediate oil futures jumped and were 2.6% higher at 7 a.m. ET Monday.

Tariffs are a wild card for the global economy.

"The benign global macro outlook — with solid growth, normalising inflation and the tailwind of gradually declining rates in the US and beyond — now looks to be disrupted by one of the well-flagged risks coming into 2025," Goldman Sachs analysts wrote on Sunday.

Businesses from automakers to agriculture could be hit hard.

"It's bad for earnings, because it's a squeeze on corporate margins and growth," Rodda said. "It's also bad for valuations because it increases volatility and lowers the odds of a rate cut from the Fed going forward."

Trump said on Truth Social on Sunday that while his tariffs may cause " pain," they would "ALL BE WORTH THE PRICE."

George Saravelos, Deutsche Bank's global head of foreign exchange research, wrote on Sunday that investors who underestimated the impact of Trump's tariffs now need to rethink how they could affect markets.

"The macroeconomic implications of such tariffs are likely to be wide-ranging and materially disruptive, especially outside of the US," Saravelos wrote.