Global markets fall as trade war escalation and Mexico tariffs fuel a 'triple hit of bad news'

  • Global stocks fell on Friday after the Trump administration announced a 5% tariff on all Mexican exports to the US, rising to 25% in October if illegal immigration doesn’t fall dramatically.
  • Traders also took cover after China confirmed it has mapped out how to restrict America’s supply of rare-earth metals to hurt the US economy.
  • China also revealed its manufacturing activity contracted in May as US tariffs took a toll.
  • “Today’s triple hit of bad news has proved too much for investors to stomach,” one analyst said.
  • View Markets Insider’s homepage for more stories.

Asian and European stocks and US futures fell on Friday after the Trump administration announced tariffs on all Mexican exports to America in a bid to reduce illegal crossings at the southern border. China’s confirmation that it has planned out how to restrict America’s supply of critical rare-earth metals, and a decline in Chinese manufacturing in May, also weighed on markets.

“On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP,” the president tweeted. “The Tariff will gradually increase until the Illegal Immigration problem is remedied at which time the Tariffs will be removed.”

The tariffs will rise monthly until they reach 25% at the start of October and remain at that level “until Mexico substantially stops the illegal inflow of aliens coming through its territory,” the White House said in a statement. The duties have global implications as thousands of multinationals operate in Mexico including Ford, General Motors, Coca-Cola, IBM, John Deere, and Toyota, according to the BBC.

“Trump is going all out here,” said Jasper Lawler, head of research at London Capital Group. “The move to start a trade war on another front has shaken sentiment in an already fragile market.”

Shares in automakers that ship cars from Mexico to America were among the hardest hit as investors feared the tariffs would disrupt their Mexican operations and increase costs. Volkswagen fell 3%, Fiat Chrysler dropped 5%, and Mazda tumbled 7%. Banks BBVA and Santander, which have significant presences in Mexico, dropped around 4% and 2%.

“Coming at a time of a breakdown in talks with China, it’s another blow to bulls and we should consider further downside risks from escalation,” said Neil Wilson, chief market analyst for America starting “a fight with its neighbour and largest trading partner was not on the agenda.”

“The caprice of Trump has caught investors off guard and will weigh on investor sentiment,” he added.

Traders also took cover on mounting evidence that China could restrict exports of rare-earth metals to the US, where they’re used in numerous electronic devices including smartphones, car batteries, and missile-defence systems. The government has mapped out how it will leverage its control of the critical resources to hurt the US economy if the trade dispute escalates further, according to Bloomberg.

Moreover, Chinese manufacturing slowed in May as US tariffs depressed activity. The monthly PMI survey showed a contraction of 0.7 percentage points to 49.4%, according to China’s National Bureau of Statistics.

The rare-earth threat “represents a new aggressive posture from China,” Lawler said, while the manufacturing decline is “heightening concerns over a global growth slowdown.”

“Today’s triple hit of bad news has proved too much for investors to stomach,” he added.

Here’s the market roundup as of 10.02 a.m. (5.02 a.m. ET):

Asian markets closed lower. The Shanghai Composite and SZSE Component slid 0.2%, Japan’s Nikkei dropped 1.6%, and Hong Kong’s Hang Seng fell 0.8%.

European equities fell sharply in morning trading. Germany’s DAX dropped 1.6%, Britain’s FTSE 100 slumped 1%, and the Euro Stoxx 50 tumbled 1.4%.

US stocks are set to open lower. Futures underlying the Dow Jones Industrial Average and S&P 500 were down about 1%, while Nasdaq futures fell 1.3%.

Oil prices have slumped with Brent crude down 2% at about $US64 a barrel, and WTI down 1.9% at about $US55.50.

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