EU and India begin freezing trade dialogues with the US over Trump’s new tariff initiative

On Monday, February 23, the US stock market was hit by a wave of sell-offs, resulting in a deep decline across major indices. By the end of trading, the Dow Jones (US30) fell by 1.66%, the S&P 500 (US500) dropped 1.04%, and the Nasdaq (US100) closed 1.13% lower. The primary pressure on the market came from a sharp shift in White House trade policy: after the Supreme Court blocked previous duties, Donald Trump utilized the rare mechanism of Section 122 of the Trade Act of 1974, setting a global tariff at 15%. Investors fear that this measure, which remains in effect for 150 days without Congressional approval, will trigger full-scale trade wars, a concern already confirmed by the European Parliament’s decision to suspend work on a trade agreement with the US.

In parallel with political risks, the technology sector was struck by fears regarding the disruptive impact of artificial intelligence on established business models. IBM shares plummeted 13.1% as a reaction to Anthropic’s launch of new Claude Code tools capable of automating the modernization of legacy code (COBOL), threatening a significant portion of IBM’s consulting and mainframe business. Similar dynamics were observed in the financial sector: American Express shares fell 7.2% after the publication of a sensational report by Citrini Research, which predicts massive white-collar job cuts due to AI implementation, inevitably leading to a decline in consumer spending and transaction volumes.

On Monday, the Canadian dollar (CAD) declined to the 1.37 mark against the US dollar, holding near monthly lows. The currency’s dynamics reflect the market’s attempt to balance the sharp tightening of US trade policy against weakening domestic inflation expectations. Short-term optimism sparked by the US Supreme Court’s decision to overturn previous duties was entirely neutralized by Donald Trump’s retaliatory move. On the commodities front, even a moderate strengthening of oil prices failed to support the “loonie.” Renewed protectionist risks and the threat of a large-scale trade confrontation with its largest partner outweigh any positive signals from the energy market.

The Mexican peso (MXN) weakened to 17.27 per US dollar, retreating from its mid-2024 peaks under the pressure of a new wave of American protectionism. The main factor for the decline was Donald Trump’s decision to invoke Section 122 of the Trade Act to introduce a 15% global tariff. This step, taken by bypassing the Supreme Court’s decision, creates serious risks for Mexico’s export model, as the 150-day tariff period could become a tool for heavy pressure on Mexico City regarding migration and security issues. Despite positive macroeconomic data from Mexico itself, where Q4 2025 GDP grew by 0.9% thanks to service sector resilience and industrial recovery, investors prefer to exit the peso.

Equity markets in Europe mostly declined on Monday. The German DAX (DE40) fell by 1.06%, the French CAC 40 (FR40) closed down 0.22%, the Spanish IBEX 35 (ES35) rose by 0.56%, and the British FTSE 100 (UK100) closed at negative 0.02%. The German market demonstrated weaker dynamics compared to other European platforms as investors reacted painfully to Donald Trump’s new tariff initiative. The situation is exacerbated by legal confusion. The European Parliament’s decision to freeze the ratification of the trade agreement with Washington until March triggered mass sell-offs in the Eurozone’s export-oriented industries. Investors are redistributing capital toward less volatile assets while awaiting official clarifications from Washington regarding the fate of existing transatlantic agreements.

WTI oil prices traded around $66.50 per barrel on Monday, holding near six-month highs. The market is in a state of tense anticipation, balancing signals of a possible diplomatic detente against threats of new trade barriers. Traders’ primary focus is on the meeting in Geneva at the end of the week, where the Iranian Foreign Minister and US Ambassador Steve Witkoff will attempt to find a way out of the nuclear impasse. Optimistic statements from Tehran regarding a reachable compromise have somewhat calmed investors; however, the risk of failed negotiations is still priced into current quotes.

Asian markets traded with mixed dynamics last week. The Japanese Nikkei 225 (JP225) and the Chinese FTSE China A50 (CHA50) did not trade yesterday, the Hong Kong Hang Seng (HK50) rose by 2.53%, and the Australian ASX 200 (AU200) showed a negative result of 0.61%. Market sentiment is largely defined by uncertainty surrounding Washington’s tariff policy. Donald Trump’s decision to introduce a 15% global tariff in response to the Supreme Court verdict and his threats against countries “playing games” with trade agreements are forcing investors to seek refuge in Chinese and Hong Kong protective government assets. Trump’s new flat rate may actually reduce the overall tariff burden on Chinese exports compared to previous “emergency” duties, which is preventing the market from entering a state of panic selling.

The yield on China’s 10-year government bonds decreased to 1.79% on Tuesday, February 24, returning to three-month lows. The return of investors after the Lunar New Year celebrations took place in an atmosphere of caution, caused by both external trade shocks and Beijing’s restrained stance. The People’s Bank of China (PBoC) maintained its Loan Prime Rates (LPR) for the ninth consecutive time at 3.0% for one-year and 3.5% for five-year loans, confirming that authorities do not plan aggressive policy easing in the near term, preferring targeted support measures for specific sectors.

Also in the spotlight were sensational reports from Japanese media regarding hidden mechanisms for supporting the yen. It was revealed that in January, the US authorities, on their own initiative, conducted “rate checks”, a procedure that usually precedes actual currency interventions. This operation was led by US Treasury Secretary Scott Bessent. Washington took this step without an official request from Tokyo, fearing that the political vacuum and volatility ahead of the recent general elections in Japan (held on February 8) could destabilize not only the Yen but also the global bond market.