ASX200 retreats from records on president-elect Donald Trump’s tariff blow for China, Canada and Mexico

The Australian share market has retreated further from a run of record highs after president-elect Donald Trump threatened to impose 25 per cent tariffs on all products coming from Mexico and Canada.

Trump said the imposts aimed to stop what he says is an influx of illegal immigrants and drugs into the country.

After starting trade flat, the ASX200 had dropped to 8383.1 — down 0.4 per cent — by 11.50am, just a few hours after Trump revealed his blueprint to make good on sweeping tariffs aimed at re-energising US manufacturing.

Energy and bank stocks took the brunt of the blow, dropping 2.7 per cent and 1.4 per cent, respectively.

Consumer staples, IT, real estate, health care and mining stocks held on to gains and remained in the green.

It marked a sharp retreat from Monday’s intraday record high — its third in the past six days. The index gained 23.80 points or 0.28 per cent to reach 8417.60, although it did fall 44 points from its high in the last hour of trading.

The Aussie dollar also fell just over one per cent to US64.34 on Trump’s news as investors feared it could ignite a global trade war between the world’s biggest economy and second-biggest economy, China.

In a post on Truth Social, Mr Trump said on January 20 he would sign an executive order to charge a 25 per cent tariff on products from the two countries, adding that he would also impose a 10 per cent tariff on Chinese goods.

The news saw the value of the US dollar bounce.

Mr Trump said the influx of “illegal aliens” brought drug problems with it and the tariffs would stay in place until the issues were resolved.

“Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price,” he said.

Mr Trump said the China tariff would help stop the “massive amounts of drugs, in particular fentanyl” being imported into the US.

“Representatives of China told me that they would institute their maximum penalty, that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our country, mostly through Mexico, at levels never seen before,” he said.

“Until such time as they stop, we will be charging China an additional 10 per cent tariff, above any additional tariffs, on all of their many products coming into the United States of America.”

The news had an immediate impact on the markets. Asian tocks were weak after strong gains globally in the previous session following fund manager Scott Bessent being nominated as Treasury Secretary, considered by investors as a voice for Wall Street in Washington.

“It’s almost as if Trump wants to remind markets who is in control, after nominating Scott Bessent as Treasury Sec — a man markets expected to cool Trump’s potency,” said Matt Simpson, senior market analyst at City Index.

There had been hopes the appointment of the hedge fund manager could take some of the sting out of Trump’s more extreme economic views.

Gold steadied after falling earlier. A stronger US dollar reduces the allure of gold as it makes it more expensive for many buyers.

Bullion traded near $US2630 an ounce after slumping 3.4 per cent in the previous session on a de-escalation of tensions in the Middle East that sapped haven demand.

The precious metal has still climbed more than 25 per cent this year.

The US dollar jumped 1.5 per cent to 20.58 Mexican pesos early in the Asian day. It added 0.14 per cent to 154.43 yen.

The euro slid 0.4 per cent to $US1.0453 ($A1.6071) and sterling lost 0.24 per cent to $US1.25405.

“Today’s announcement could be interpreted as risk-positive rather than negative for the following reasons, said market analyst Tony Sycamore said..

“A 10 per cent increase in tariffs on China would place the average tariff rate at 27 per cent, significantly lower than the 60 per cent he threatened during his campaign and well below the consensus of 40 per cent.”

with AAP