Temporary Suspension of Tariffs

On the first weekend of February, U.S. President Donald Trump signed decrees increasing tariffs on imported goods from Canada and Mexico. The tariffs were set to rise by 25%, with an additional 10% specifically targeting Canadian oil and natural gas. However, just hours before they were set to take effect on February 4, 2025, top officials from the involved countries announced a temporary 30-day delay. A key factor in this postponement was an agreement to implement stricter border measures aimed at reducing smuggling activities, particularly of fentanyl, into the U.S. Canada committed to enhancing its efforts against organized crime, while Mexico’s President Claudia Sheinbaum secured a U.S. commitment to address the illegal sale of firearms into Mexico.[1] However, the agreement followed threats of retaliatory measures. Canada, for example, had planned to impose 25% tariffs on U.S. products worth up to $155 billion.[2]

Tariffs in Effect for China, Europe May Be Next

While announcing the tariff package for neighbouring countries, Trump did not exclude China. Unlike Canada and Mexico, no delay was granted, and a 10% tariff on all Chinese imports took effect on February 4, 2025. In response, Beijing imposed 15% tariffs on liquefied natural gas and coal, while oil, agricultural equipment, and trucks were hit with a 10% tax. These Chinese tariffs will take effect on February 10, 2025. Additionally, China announced export controls on rare minerals, the blacklisting of certain U.S. companies, and the launch of an antitrust investigation into Google.[3] Trump also warned that the European Union would soon face similar tariffs, arguing that it does not import enough American products.[4]

Asian Markets Rebound from Initial Losses

On Monday, February 3, 2025, following the tariff announcement, Asian stock markets saw sharp sell-offs. Japanese automakers, including Toyota, Honda, and Mazda, whose U.S. sales depend on supply chains in Mexico and Canada, were particularly hard-hit. The turmoil dragged down key indices such as Japan’s Nikkei 225 and Hong Kong’s Hang Seng. However, the announcement of a tariff delay and China’s countermeasures provided some relief, helping stocks and indices later recover some of their losses.[5] Chinese markets remained closed due to the Lunar New Year celebrations.

Losses in the U.S.

Wall Street also experienced declines. Concerns over rising prices, increased inflation, and economic slowdown caused by tariffs led major indices S&P 500, Dow Jones, and NASDAQ to close in the red on Monday. Tech stocks, such as Apple, which heavily relies on Chinese manufacturing, suffered losses, as did automakers like Tesla and General Motors. Beverage giant Diageo, whose tequila production is based in Mexico, was also affected.[6]

Uncertainty in Europe

European markets mirrored global losses, with the automotive sector being the most impacted on Monday. Volkswagen and Stellantis, both of which have manufacturing operations in Mexico, saw declines, along with Mercedes and BMW. While some automakers managed to trim losses. As Reuters reports, the Mexican tariffs could have a much worse impact on the European automotive sector, including their suppliers, than tariffs imposed on other EU goods.  Some European indices also went through a correction.[7]

Gold Reaches Record High

One clear winner in this turbulent environment was gold, as investors turned to it as a safe-haven asset. On Monday, February 3, 2025, gold prices surged to a new all-time high of $2,830 per troy ounce. Gold futures contracts also hit a record level of $2,870 before retreating. By February 4, 2025, spot gold was trading at $2,821, while futures contracts had dropped to $2,848.*

Price development of spot gold over the past five years. (Source: Investing.com)*

Price development of gold futures contracts for April 2025 delivery over the past five years. (Source: Investing.com)*

Conclusion

Although some tariffs were temporarily delayed, uncertainty in global markets remains high. The responses from Canada, Mexico, and China suggest that the trade war could escalate into a prolonged conflict, impacting multiple economic sectors. Investors are monitoring developments cautiously, turning to safe-haven assets such as gold. The key question is how the situation will unfold after the 30-day postponement expires, but one thing is certain - global trade is facing one of its most tense moments in recent history.

*Past performance is not indicative of future results.

 [1] https://www.bbc.com/news/articles/c805jjk2klko

[2] https://apnews.com/article/trump-tariffs-trade-china-mexico-canada-inflation-753a09d56cd318f2eb1d2efe3c43b7d4

[3] https://www.theguardian.com/us-news/2025/feb/04/trump-china-tariffs

[4] https://www.theguardian.com/world/2025/feb/03/eu-will-stand-up-for-itself-in-face-of-trump-tariffs-threat-macron-says

[5] https://www.investing.com/news/stock-market-news/japan-auto-stocks-slide-as-trump-tariffs-raise-cost-concerns-3844238

[6] https://www.bbc.com/news/articles/c70kn4676p4o

[7] https://www.investing.com/news/stock-market-news/european-carmaker-shares-fall-after-trump-imposes-tariffs-3844404