Global stock markets dived, the dollar rallied, oil prices jumped and world leaders readied tit-for-tat measures. Those were the almost immediate reactions to US President Donald Trump's new tariffs on Canada, Mexico and China, signed into law at the weekend.

From Tuesday, the United States was due to impose 25% additional duties on imports from Canada and Mexico and 10% on goods from China above the current tariff rate. Energy imports from Canada will be subject to a 10% tariff. Hours before they were due to take effect, Trump said he had paused the tariffs on Mexico for 30 days after talks with the country's president.

Trump's China are unprecedented in their scope and scale, targeting three of the United States' largest trading partners simultaneously. Economists have said their impact will likely paralyze economic growth both in the US and around the world.

While the president has justified the move as an attempt to address large trade imbalances and fight the illegal drugs trade and irregular immigration, Carsten Brzeski, chief economist at the Dutch ING bank in Germany, warned that the tariffs have marked the start of a "fully-fledged trade war which could still escalate."

"Donald Trump is not only barking, he's also biting and he's delivering all of his election promises," Brzeski told DW.

Markets jolted by trade war fears

Reacting to the announcement, Asian stock markets fell by up to 2% on Monday — beginning the so-called Year of the Snake with a venomous bite. Some European markets, including Frankfurt and Paris, saw similar drops after the US president warned the European Union would be hit "pretty soon" by similar tariffs.

Shares in European automakers, measured by the STOXX 600 index, fell more than 4% on Monday morning. German automakers — who export tens of thousands of cars to the US each year from Mexico — are likely to be hit hard by the new tariffs. Around two-thirds of Volkswagen's US-bound cars are produced in Mexico, according to analysts at the US investment bank Stifel.

The North American auto industry is deeply integrated, with car parts crossing borders multiple times during the manufacturing process. The new tariffs threaten to disrupt these complex supply chains, leading the German carmakers association VDA to speak of "a significant setback for rules-based global trade."

US stock futures were also down sharply early Monday, in what is the biggest week for fourth-quarter earnings. More than 120 S&P 500 companies are set to report their results, including Google parent Alphabet, Amazon and The Walt Disney Co.

The dollar has soared against other major currencies, rising by 2.3% against the Mexican peso and more than 1% against the Canadian dollar and euro, which the European Central Bank (ECB) warned could weaken further.

Oil prices also rose more than 2% on fears of supply disruptions from the tariff on Canadian energy exports and after Trump threatened further tariffs related to the oil and gas sector in mid-February, without giving further details.

Trump's targets prepare retaliatory tariffs

Canadian Prime Minister Justin Trudeau hit back on Saturday by announcing 25% levies on $107 billion (€104.5 billion) of US imports in two rounds — with the first to begin this week. Leaders of several Canadian provinces have already announced their own retaliatory measures, including the immediate halt of US alcohol purchases.

On X, Trudeau effectively called for a boycott of US goods, asking the public to "choose products made right here in Canada." In a speech, he warned Americans that the tariffs would potentially put US jobs at risk and raise food and gasoline costs.

Over the weekend, Mexican President Claudia Sheinbaum ordered her economy minister to "implement Plan B," which includes unspecified "tariff and non-tariff measures." 

Trump held talks with the leaders of both countries on Monday as policymakers attempted last-ditch efforts to halt the new tariffs. Following her call, Sheinbaum said Trump had agreed to pause the tariffs on Mexico for a month, detailing on social media her commitment in return.

"Mexico will reinforce the northern border with 10,000 members of the National Guard immediately, to stop drug trafficking from Mexico to the United States, in particular fentanyl," Sheinbaum posted on X.

At the weekend, meanwhile, China said it would "take necessary countermeasures to defend its rights and interests." Beijing said Trump's move violates World Trade Organization (WTO) rules and has vowed to bring a case before the body that governs global commerce.

Rüdiger Bachmann, professor of economics at the University of Notre Dame in the US, noted how "[Trump] doesn't seem to distinguish between traditional friends and foes, adding that "China is seemingly getting a better deal than allies Canada and Mexico." Bachmann also told DW that the US president was throwing the global trade order into "chaos."

Inflation, recession fears rise

Deutsche Bank wrote Monday that the new tariffs would affect around 44% of all imports to the US — worth around $1.35 trillion — and would likely raise US inflation by as much as 1%.

For US consumers, the measures could mean higher prices for essential goods like oil, electronics and groceries, exacerbating the current cost of living crisis. Higher inflation may prompt the US Federal Reserve to maintain or increase interest rates, some economists have warned.

Deutsche Bank also said sustained tariffs would be "far larger in economic magnitude" for the Canadian and Mexican economies than Brexit on the UK. Germany's largest private lender expects both countries to tip into recession in the coming weeks.

The tariffs are expected to add $60 billion in costs to the North American auto industry, Bloomberg reported on Monday, citing research from automotive consultant AlixPartners. Separate data from Wolfe Research predicted that the average price of a new car in the US could rise by about $3,000.

Amid concerns that the EU is also on Trump's radar, the bloc's top diplomat Kaja Kallas warned Monday that there are "no winners in trade wars," adding: "We [Europeans] need America, and America needs us as well."

When he took office on January 20, Trump signed an executive order to investigate whether foreign countries are imposing discriminatory or extraterritorial taxes on US corporations. This probe is aimed primarily at the EU and the findings are due to be published on April 1.

Bachmann said the EU is a "larger market and has more bargaining power." That could help the bloc avoid higher tariffs "if the Europeans stick together and don't try to get special deals on a bilateral basis." 

But he warned that Hungarian Prime Minister Viktor Orban and Italy's Prime Minister Giorgia Meloni were threats to EU unity.

Edited by: Uwe Hessler