The Tariff War Escalates, Shaking Financial Markets and Cryptocurrencies – What Does Trump Want?

The “tariff war” has intensified to unprecedented levels, hitting financial markets and cryptocurrencies hard. European stocks plummeted, joining a global sell-off wave amid fears that the situation could escalate into a broader trade war following the latest tariffs imposed by U.S. President Donald Trump.

Global financial markets came under pressure after Trump imposed 25% tariffs on Canada and Mexico and 10% tariffs on China at the beginning of the week.

Trump also stated that he would “definitely” impose tariffs on Europe, though he did not specify his exact plans.

By 08:10 GMT, the European Stoxx 600 index had dropped by 1.4%. Automotive stocks, which are highly sensitive to trade tariffs, fell by 3.5%.

Shares of BMW, Volkswagen, Mercedes-Benz, and Stellantis declined between 3.7% and 6.5%.

Technology stocks were among the biggest losers, dropping 2.5%. ASML Holdings saw its stock fall by 2.8%, significantly impacting the index.

All European stock exchanges suffered significant declines, with Germany’s DAX index leading the fall with a nearly 2% drop. The UK’s FTSE 100 fell by 1.1%, despite Trump suggesting that Britain might be exempt from the tariffs.

Eurozone bond yields also declined, with Germany’s two-year bond yield falling by six basis points to 2.056%.

Gold Prices Decline

Meanwhile, gold prices fell after reaching an all-time high in the previous session. This decline came as the U.S. dollar strengthened amid escalating fears of a global trade war following Trump’s tariff imposition on Canada, Mexico, and China.

By 08:25 GMT, spot gold prices had dropped by 0.2% to $2,796.09 per ounce after reaching an all-time high of $2,817.23 per ounce on Friday.

U.S. gold futures also declined by 0.2% to $2,830.80 per ounce.

Jigar Trivedi, an analyst at Reliance Securities, noted that the announcement of tariffs usually drives gold prices higher due to increased demand for safe-haven assets. However, the strengthening dollar and reduced expectations for interest rate cuts exerted downward pressure.

Trump’s newly imposed tariffs of 25% on Canadian and Mexican imports and 10% on Chinese imports are set to take effect from Tuesday.

In retaliation, Canada and Mexico imposed reciprocal tariffs of 25% on U.S. imports, threatening to disrupt the economies of all three nations. China announced that it would challenge the U.S. tariffs at the World Trade Organization and implement unspecified countermeasures.

Matt Simpson, an analyst at City Index, stated: “This reaction might be short-lived, but I believe gold will continue to outperform this year amid inflation threats and the next phase of trade wars.”

Although gold is traditionally seen as a safe investment during economic and financial turmoil, a stronger dollar makes it more expensive for holders of other currencies.

Among other precious metals, silver declined by 0.2% to $31.23 per ounce, platinum dropped 1.5% to $962.98 per ounce, and palladium edged up 0.1% to $1,009.43 per ounce.

Cryptocurrency Market Plummets

In a related development, the cryptocurrency market lost nearly half a trillion dollars in market value from Saturday evening’s session to Monday morning trading, following Trump’s tariff announcement.

As of early Monday trading, the total market capitalization of cryptocurrencies fell to $3.04 trillion, down from $3.5 trillion before Trump’s announcement.

Bitcoin’s price fell below $94,000 per unit in early Monday trading, down from nearly $100,000 during Saturday evening transactions.

Most cryptocurrencies suffered varying declines, triggering a massive sell-off in the crypto market as investors shifted to the U.S. dollar, considered a safe haven amid rising trade tensions.

In early Monday trading, the U.S. dollar index surged 1.2%—the highest daily increase since the COVID-19 outbreak in late 2019—reaching 109.6, its highest level in two and a half years.

In response to the U.S. announcement, Canadian Prime Minister Justin Trudeau introduced a retaliatory 25% tariff, while Mexican leader Claudia Sheinbaum vowed to implement countermeasures.

What About Britain?

Trump suggested that while Britain is “outside the acceptable framework” concerning trade, it might still avoid tariffs. He added that this issue “could be resolved.”

Trump’s newly imposed tariffs on Mexico, Canada, and China have heightened concerns of a trade war that could derail global economic growth and increase costs for consumers.

When asked whether Britain would be the next target for tariffs, Trump responded: “We’ll see how things unfold. It might happen with them, but it will definitely happen with the European Union. I can tell you that.”

Speaking to reporters upon returning to Washington from his Mar-a-Lago resort in Florida, Trump said: “Britain is significantly outside the acceptable framework… We’ll see… But the European Union is completely outside the acceptable framework. Britain is outside, but I think that issue can be resolved. However, the EU is terrible in its trade practices.”

A UK government spokesperson responded on Monday, stating that Britain maintains “fair and balanced” trade relations with the U.S.

“The United States is an indispensable ally and one of our closest trade partners. We have a fair and balanced trade relationship that benefits both sides,” the spokesperson added.

UK Prime Minister Keir Starmer and his ministers have previously praised Trump since his re-election, emphasizing the importance of U.S. imports to Britain in hopes of avoiding tariffs, especially as the UK economy struggles with growth.

“It’s still early, and what I want to see is strong trade relations,” Starmer told reporters over the weekend. “That’s what I focused on in my discussions with President Trump.”

The U.S. remains Britain’s largest individual trade partner, although the EU surpasses it as a trading bloc. Less than one-third of UK-U.S. trade consists of goods, which could be subject to tariffs, while the rest comprises services.

EU’s Response

Spanish Economy Minister Carlos Cuervo emphasized the need for EU unity in responding to Trump’s tariff threats against the bloc.

Speaking to Spanish radio station RNE, Cuervo said: “The EU is open to trade and supports a globalized market, but we must not be naive. We need to protect our companies and ensure they can compete under fair conditions.”

The EU has vowed a “firm” response should Trump impose tariffs on the bloc and condemned the U.S. tariffs on Canada, Mexico, and China.

Brussels hopes to avoid a trade conflict with Trump through negotiations. However, Trump stated on Friday that he “will definitely” impose tariffs on the EU in the future, following his actions against China, Mexico, and Canada.

An EU Commission spokesperson expressed regret over the U.S. decision, warning that “tariffs create unnecessary economic disruptions and contribute to inflation. They harm all parties involved.”

“The EU will firmly respond to any unfair and arbitrary tariffs imposed on its goods,” the spokesperson added, noting that no additional tariffs on EU products had been confirmed yet.

The EU remains committed to low tariffs “to foster economic growth and stability within a strong, rule-based trading system.”

Reaffirming the EU’s strategic trade partnership with the U.S., the spokesperson emphasized: “There is a lot at stake, and both sides must work to strengthen this relationship.”