Markets unsettled as Trump imposes 25% tariffs on steel and aluminium

Stock futures fell, gold reached a new high, and the euro slid against the dollar amid Trump’s renewed tariffs on two major industrial metals in Tuesday’s Asian session. Risk-aversion sentiment may ripple through the European markets as a trade war widens. 

The European Union (EU) said in a statement before the order became official that it would not hesitate to retaliate if the US imposed the new tariffs. The EU, particularly Germany, is a major steel exporter to the US. In Trump’s first term, the EU responded with tariffs of €2.8 billion on US goods. On Monday, China’s retaliatory tariffs on the US goods have also taken effect. 

Trump orders a 25% levy on steel and aluminum imports

US President Donald Trump signed an executive order to impose 25% tariffs on steel and aluminum imports, effective from 4 March. The widespread levies on the two major manufacturing materials will apply to all the US trading partners, including the top importers Mexico and Canada. 

“Essentially, we’re putting on a 25% tariff, without exception, on all aluminium and all steel, and it’s going to mean a lot of businesses are going to be opening in the United States,” said Trump. However, he indicated that he may consider an exemption for Australia to credit the country’s import of US-made aircraft. 

The 25% levy on the two metals will be in addition to the already imposed 10% tariff on China and the paused 25% duty on Canada and Mexico. Economists expect the new tariffs is likely to fuel inflationary pressure on consumer prices in the US as the levy will also include finished productions.  According to Morgan Stanely, aluminium imports accounted for 80% of the US demand in 2023, with Canada supplying approximately 70% of them.

The United Arab Emirates and China are also major suppliers of America’s aluminium. 

Market sentiment sours

Risk sentiment soured following Trump’s official order to impose additional tariffs on steel and aluminium. In the Asian session on Tuesday, stock markets across Asia were all lower, and equity futures in Europe and the US also fell, pointing to a negative open on Tuesday. Germany’s DAX is likely to face a retreating risk after the index reached a new high on Monday. 

Uncertainties continued to fuel demands in haven assets and pushed gold prices to a new high. Spot gold prices topped $2,940 (€2,853) at the highest before retreating to $2,917 (€2,831) at 3:45 am CET. Both the Canadian dollar and Mexican peso fell nearly 0.2% against the US dollar. The euro slid to under 1.03 at a one-week low. 

Despite this, the market volatility is not as wide as the time when Trump first announced his blanket tariffs on Canada, Mexico, and China last month. Investors are more concerned about potential countermeasures from other countries, which will lead to a global trade war and darken the economic outlook. 

“I do think there is a slightly greater risk aversion today, not necessarily from the steel and aluminium tariffs per se, but that talk of further, some retaliatory, tariffs by Trump”, said Kyle Rodd, a senior market analyst at Capital.com Australia.

“The fear simmering in the markets is of a much wider, global trade war, that would have far more significant economic impacts. It’s keeping market participants on edge”, he said.