Bank of Singapore’s chief economist Mansoor Mohi-uddin sees four implications from the sudden return of trade wars this year.
According to Mohi-uddin, US President Donald Trump’s moves to impose additional tariffs on Canadian and Mexican exports as well as Chinese goods, came as a surprise to investors. Trump, on Feb 1, issued an executive order under the US International Emergency Economic Powers Act to impose 25% additional tariffs on all Canadian and Mexican exports and 10% further tariffs on Chinese goods. The tariffs will begin on Feb 4, according to the White House.
“Trump’s early strike, just two weeks into his four-year term, is likely to hit investor confidence,” says Mohi-uddin in his Feb 3 note. “The consensus - including ourselves - had expected US tariffs would only threaten the economic outlook in the second half of 2025 after lengthy negotiations first between the US and its main trading partners.”
In retaliation, Canada said the country would impose 25% tariffs against C$155 billion or US$106 billion worth of US goods. Mexico and China also said they will impose retaliatory tariffs and “corresponding countermeasures”.
Four implications
In Mohi-uddin’s view, the tariffs will hurt growth. Canada and Mexico are most at risk, with exports to the US worth almost 20% of the former’s GDP.
See also: US inflation eases, offering some relief ahead of tariffs
That said, the moves are unlikely to benefit the US either. In 2025, the economist believes the US economy will see growth slow to 2.2%, compared to its 2.8% expansion in 2024.
A 10% tariff on Chinese exports may be “less than feared” at the moment, but the economist believes US tariffs may rise to 20% to 30% given China still runs a large trade surplus of US$300 billion with the US. As a result, China’s growth may also be lowered to 4.2% in 2025, down from 5% in 2024.
The steeper tariffs may see lesser rate cuts from the US Federal Reserve as the moves will increase US import prices. With US core inflation still near 3.0%, Mohi-uddin’s forecast of one more 25 basis point rate cut may be thwarted.
See also: Fed’s Powell says still no need to hurry to consider rate moves
The increased tariffs by the US may also see the 10-year (10Y) US Treasury yields rising to 5% as a second Trump term will boost inflation. Higher US tariffs will also help the US dollar rally by cutting the country’s demand for imports, Mohi-uddin notes.
Overall, the economist sees the financial markets’ strong start to the year is set to come under pressure in the coming week if America and its trading partners don’t come to an agreement before the new US tariffs come into force.
As at Feb 2, the 10Y US Treasury yield is at 4.513%.
