US stocks open at lowest level in weeks as tariff crisis deepens

(Reuters): US stocks opened on Monday at their lowest level since Donald Trump was sworn in two weeks ago, and other global financial markets slumped after the US president ordered tariffs imposed on Canada, Mexico and China, while world leaders responded to his threats to expand tariffs to the European Union as well.

The benchmark S&P 500 fell 1.7% at the opening bell, on the heels of the year's biggest daily losses on a string of Asian and European bourses over fears of an economically damaging trade war.

Trump said his tariffs on the three largest US trading partners, which take effect on Tuesday, might cause Americans some short-term pain, but "long term, the United States has been ripped off by virtually every country in the world".

Speaking in Washington on Sunday after returning from his Mar-a-Lago estate, Trump indicated that the 27-nation European Union would be next in the firing line, but did not say when.

"They don't take our cars, they don't take our farm products. They take almost nothing and we take everything from them," he told reporters.

EU leaders meeting at an informal summit in Brussels on Monday said Europe would be prepared to fight back if the US imposes tariffs, but also called for reason and negotiation.

Arriving at the talks, French President Emmanuel Macron said if the EU were attacked in its commercial interests it would have to "make itself respected and thus react".

And the owner of the ex-social media platform, gave an update where he said the United States Agency for International Development, or USAID, was quote, beyond repair.

Chancellor Olaf Scholz of Germany said the bloc could respond if necessary with its own tariffs against the US, but stressed it was better for the two to find agreement on trade.

Trump hinted that Britain, which left the EU in 2020, might be spared tariffs, saying: "I think that one can be worked out".

The US is the EU's largest trade and investment partner. According to the Eurostat data from 2023, the United States had a deficit of 155.8 billion euros ($161.6 billion) with the EU in the trade of goods, offset by a surplus of 104 billion euros in services.

EU foreign policy chief Kaja Kallas said there were no winners in a trade war, and if one broke out between Europe and the United States, "then the one laughing on the side is China".

Trump said on Monday he had spoken with Canadian Prime Minister Justin Trudeau and would do so again at 3 p.m. ET (2000 GMT). He previously said he planned to speak with Mexican President Claudia Sheinbaum on Monday as well.

Both Canada and Mexico have announced retaliatory tariffs of their own, and Trump has downplayed any expectations that he might change his mind.

White House National Economic Council Director Kevin Hassett suggested Washington was more satisfied with Mexico's response so far than Canada's. He told CNBC that Mexico appeared to be "very, very serious about doing what President Trump said," but the "Canadians appear to have misunderstood the plain language of the executive order".

Economists say the Republican president's plan to impose 25% tariffs on Canada and Mexico and 10% tariffs on China would slow global growth and drive prices higher for Americans.

Trump says they are needed to curb immigration and narcotics trafficking and spur domestic industries.

Financial market reaction on Monday reflected concerns about the fallout from a trade war. Shares in Tokyo ended the day down almost 3% and Australia's benchmark - often a proxy trade for Chinese markets - dropped 1.8%. The mainland China market was shut for Lunar New Year holidays.

Around lunchtime in Europe, Germany's DAX index was down 1.8%, France's CAC down 1.9% and Britain's FTSE 100 down 1.5%.

The Chinese yuan, Canadian dollar and Mexican peso all slumped against a soaring dollar. With Canada and Mexico the top sources of US crude oil imports, US oil prices jumped more than 1%, while gasoline futures rose nearly 3%.

Trump's tariffs will cover almost half of all US imports and would require the United States to more than double its own manufacturing output to cover the gap - an unfeasible task in the near term, ING analysts wrote.

Other analysts said the tariffs could throw Canada and Mexico into recession and trigger "stagflation" - high inflation, stagnant growth and elevated unemployment - at home.

In Europe, economists at Deutsche Bank said they were currently factoring in a 0.5% hit to gross domestic product (GDP) should Trump impose 10% tariffs on the bloc.

A White House fact sheet gave no details on what Canada, Mexico and China would need to do to win a reprieve.

Trump vowed to keep the sanctions in place until what he described as a national emergency over fentanyl, a deadly opioid, and illegal immigration to the United States ends.

China called fentanyl America's problem and said it would challenge the tariffs at the World Trade Organization and take other countermeasures, but also left the door open for talks.

Mexico's Sheinbaum said she would provide more details on Monday of the retaliatory tariffs she ordered on the weekend. Canada said it would take legal action under the relevant international bodies to challenge the tariffs.

Automakers would be particularly hard hit, with new tariffs on vehicles built in Canada and Mexico, burdening a vast regional supply chain where parts can cross borders several times before final assembly. Ford (F.N), opens new tab and General Motors (GM.N), opens new tab shares fell between 4% and 5%.

Shares in Volkswagen (VOWG_p.DE), opens new tab, BMW (BMWG.DE), opens new tab, Porsche (P911_p.DE), opens new tab, Stellantis (STLAM.MI), opens new tab, and truckmaker Daimler Truck (DTGGe.DE), opens new tab all fell by about 5-6% in European trading on Monday.

Analysts at investment bank Stifel estimated that 8 billion euros of VW's revenues would be impacted by tariffs and 16 billion euros of Stellantis.