[ROLLING ANALYSIS] US President Trump pauses tariffs on Canada and Mexico, China retaliates, and the EU is in the firing line

CHINA’S RETALIATION

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  US Tariffs: The new 10% tariff on all Chinese exports to the US took effect after the deadline passed.


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  China's Retaliation: China imposed 15% tariffs on US coal & LNG, 10% tariffs on US oil, agricultural machines, and some autos.


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  Timing: Counter tariffs will take effect on February 10th.


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  China's Finance Ministry: Tariffs imposed in direct response to Trump's 10% tariffs.


• 
  Google Antitrust Probe: China is launching an anti-trust investigation into Alphabet's (GOOGL) Google.


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  Export Controls (No specific country mentioned): China imposed restrictions on tungsten, tellurium, bismuth, molybdenum and indium.

Note: China's export restrictions on tungsten, tellurium, bismuth, molybdenum, and indium could significantly impact industries reliant on advanced materials. Tungsten is critical for aerospace, defence, and industrial tools due to its hardness and high melting point. Tellurium is essential for solar panels, thermoelectrics, and steel alloys. Bismuth is used in pharmaceuticals, low-toxicity solder, and lead-free ammunition. Molybdenum strengthens steel alloys for aerospace, nuclear, and industrial applications. Indium is vital for semiconductors, touchscreens, and solar cells. Given China's dominance in these metals, the restrictions could disrupt global supply chains, particularly in technology, energy, and defence sectors.

TRUMP'S CHINA COMMENTS

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  China Talks Coming: US will likely speak to China within 24 hours.
  


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  Tariff Increases Possible: Current China tariffs are an "opening salvo", and tariffs will increase if no deal is reached. If no deal is made, tariffs will be "substantial".


• 
  Panama Canal Warning: Trump claims China won’t be involved with the Panama Canal for long.

TRUMP-XI CALL: 

There is no telegraphed time for the call between the US and Chinese presidents. However, given the time zones, potential times for dialogue could include:

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  13:00–15:00 GMT / 08:00-10:00 EST (US morning, China evening)


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  00:00–02:00 GMT/ 19:00-21:00 EST  (China morning, US evening)

REACTION TO CHINA'S RETALIATION:

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  Hang Seng wobbled after China announced tit-for-tat tariffs against the US.


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  US equity futures saw a mild dip before eventually paring half of the move.


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  UST Mar'25 futures saw modest fleeting upside but trade ultimately lower intraday.


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  Crude futures saw a mild dip.


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  Spot gold was relatively flat.

WEEKEND REPORTS

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  Retaliation: China plans to challenge tariffs under WTO and will take necessary countermeasures.


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  Dialogue: China urged the US to engage in dialogue & cooperation and emphasised there are no winners in a trade war.

Chinese Policy Action (according to WSJ sources):

• Will not devalue the Yuan to help exporters.


• Plans to reinstate 'Phase One' deal as an opening bid in trade talks.


• Will offer more US investments & treat TikTok as a commercial issue.

CANADA'S TARIFF PAUSE 

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  Tariff Pause: US tariffs on Canada paused for 30 days to allow for economic deal negotiations.


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  Canadian PM Trudeau’s Response: Had a “good call” with Trump, Canada to send 10,000 troops to secure the Northern Border, Canada will appoint a "fentanyl czar".


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  Trump's Comments (Via Truth Social): "Tariffs announced on Saturday will be paused for a 30 day period to see whether or not a final Economic deal with Canada can be structured".

WEEKEND REPORTS

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  Retaliation: 25% tariffs on CAD 155bln of US goods; CAD 30bln in tariffs effective Feb 4th, remainder (CAD 125bln) in 21 days.


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  USMCA: Canadian PM Trudeau said the US tariffs violate the USMCA trade deal.


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  Further measures: Canada considering non-tariff measures, including minerals & energy procurement.


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  Transition Clause: Tariffs won’t apply to goods in transit.


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  Domestic Economic Impact: Canadian official said countermeasures will impact the Canadian economy, but a plan is in place.

MEXICO'S TARIFF PAUSE:

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  Tariff Pause: Tariffs on Canada paused for 30 days to allow for economic deal negotiations. Tariffs could still be imposed if Mexico does not follow through


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  Mexican President Sheinbaum's Response: Mexico will deploy 10,000 troops to its northern border to help stop fentanyl trafficking. US will increase efforts to block firearms from flowing into Mexico. Bilateral talks on trade & security to begin, led by US Secretary of State Marco Rubio.


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  Trump's Comments (on Truth Social): Had a "very friendly conversation" with Sheinbaum.

WEEKEND REPORTS

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  Retaliation: Ordered retaliatory tariffs against the US, will release details today (Monday 3rd February).


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  Domestic Economic Impact: US tariffs will have a great economic impact on both countries. Confirmed ‘Plan B’ is underway in response to US tariffs.


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  Dialogue: Stated tariffs won’t solve problems, only dialogue will.


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  Prior sources: On Jan 29th, Reuters sources suggested Mexico is to apply tariff and non-tariff measures in defence, potentially ranging from 5% to 20%, on agricultural products as well as manufactured steel and aluminium. Sources added that retaliatory tariffs would initially exempt the automotive industry.

EU’S RESPONSE:

Tariffs: US President Trump reportedly considering plans to impose a 10% tariff on the EU, according to The Telegraph. EU Commission President von der Leyen said that when targeted with unfair or arbitrary tariffs, the EU will respond firmly.

WEEKEND REPORTS

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  Tariffs: Rejected US tariffs on Canada, Mexico, and China.


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  Retaliation: Warned of a firm response if US imposes tariffs on Europe. (FT)


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  Monday Meeting: EU leaders to meet on Monday talk defence; no specific discussion on US tariffs expected but issue likely to be raised, according to an official cited by CNBC.


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  Potential tension mitigation: "There’s a consensus in the European Union that one way to mitigate trade tensions with the US will be by increasing energy purchases." CNBC source added "there’s a realization that a trade confrontation with the EU is approaching."

US TARIFFS

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  Mexico & Canada: 25% tariffs on all imports, but Canadian energy products face a 10% tariff.


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  China: Additional 10% tariff on top of existing levies, no exclusions.


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  Timing: Comes into effect at 12:01 EST on February 4th.


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  Transition Clause: Exemptions for goods in transit before Feb 1st.


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  Canadian Tariff Removal Condition: If enough steps are taken to reduce the health crisis.


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  Retaliation Clause: Allows for further action, likely increased tariffs.

Other Trump Commentary:

• Tariffs on the EU will “definitely happen”.


• Stated UK is out of line and EU is really out of line. But, noted he is "getting along well" with UK PM Starmer.


• US trade deficits with Canada, Mexico, China, and the EU are “tremendous”.


• Plans to speak with Canadian PM Trudeau & Mexico on Monday.


• Trump said he is cutting off funding to South Africa over land “confiscations” and for “treating certain classes of people very badly”.

Macro reaction on Monday's reopen:

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  APAC stocks sold off as all focus was on US President Trump's latest tariff action over the weekend.


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  US equity futures (ES -1.9%, NQ -2.4%) slumped.


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  DXY strengthened.


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  10yr UST futures were initially choppy but ultimately gained.


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  Crude futures surged at the open.


• Spot gold was pressured and retreated beneath the USD 2,800/oz level as the dollar strengthened; copper futures retreated.


• 
  Crypto markets slumped with Bitcoin slipping over USD 10k over the weekend.

BULL/BEAR ARGUMENTS

Bullish Perspective:

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  Largely expected: Trump signalled for months that tariffs would be central to his second term.


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  Temporary disruptions: While initially disruptive, medium/long-term effects could boost domestic manufacturing.


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  Revenue generation: Tariffs may help fund the GOP’s reconciliation bill.


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  Flexibility for reversal: Trump may adjust tariffs later as part of a “deal.”


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  Legal challenge possible: The use of the International Emergency Economic Powers Act (IEEPA) may not hold up in court.

Bearish Perspective:

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  More extreme than some expected: Tariffs are broader and harsher than many feared.


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  Growth & inflation impact: Almost certain to weigh on economic activity, raise costs, and fuel retaliation.


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  Supply chain disruption: US-Mexico and US-Canada trade corridors are crucial, and 25% tariffs are highly disruptive.


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  Geopolitical fallout: Effectively abrogates the USMCA trade agreement, straining ties with key allies.


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  Limited fiscal benefit: Tariffs won’t significantly reduce the US deficit.


• 
  Markets underestimated Trump’s conviction: Many assumed tariffs were a negotiation tactic, but Trump appears fully committed.

HOUSE VIEWS

ING:

• Imposition date “leaves a minimal negotiation period before the tariffs are enforced.” “timeline for fitting everything into the legal framework seems quite tight, which could lead to chaos unfolding at the border in the coming days.”


• “With more than 15% of all US imports coming from Mexico, 13.7% from Canada, and 13.9% from China in 2023, almost half of everything the US imports will be affected by higher tariffs, potentially disrupting supply chains and impacting the US, Canadian, and Mexican economies significantly.”


• “Industries like automotive and manufacturing, which are deeply integrated with US supply chains, will face increased costs and disruptions, since many parts cross the border multiple times before becoming final product.”


• “At least over the longer run. Economically speaking, escalating trade tensions are a lose-lose situation for all countries involved.”

Goldman Sachs:

• “While the outlook is unclear, we think the Canada- and Mexico-focused tariffs are likely to be short-lived. We previously estimated that a long-term 25% tariff on imports from Canada and Mexico would raise core PCE prices by 0.7% and hit GDP by 0.4%. We expect to update these rough estimates and our forecast in light of the new tariff details.”


• A potential tariff-driven decline in US natural gas imports from Canada is too small to significantly raise natural gas prices, while medium-run risks to oil prices are skewed downside because persistent broad tariffs would weigh and it expects limited near-term additional effects on global, Canadian, and Mexican crude prices.

Rabobank:

• “In the short run, the tariffs are inflationary and disruptive to supply chains. In the long run, if tariffs are maintained at prohibitive levels, they could force foreign producers to relocate some of their production to the US. This will be at higher cost, as the comparative advantages that exist on the North American continent, are no longer being fully exploited.”


• “we should not forget his campaign promise to put 60% tariffs on Chinese imports, only one sixth of that has now been implemented. The Trump tariffs are here and more are coming.”

04 Feb 2025 - 07:35- MetalsGeopolitical- Source: Newsquawk