Asian markets tumble as Trump's tariff war escalates

Asian stock markets generally fell in early trading on Monday, after US President Donald Trump followed through on his promise to impose tariffs on Canada, Mexico, and China.

Investors are bracing for a potential trade war that could hit the earnings of major companies and weaken global economic growth. Canada and Mexico have said they will implement retaliatory tariffs, while China has pledged "corresponding countermeasures" and vowed to challenge Trump's moves at the World Trade Organization.

Trump has stated that the tariffs are necessary to stem the flow of illegal drugs and migrants into the United States. Hong Kong's Hang Seng index fell 0.7%, Japan's Nikkei 225 index dropped 2.8%, South Korea's Kospi index declined 3%, and Australia's ASX 200 index was down 1.9%. Mainland Chinese markets were closed for the Lunar New Year holiday.

Meanwhile, the US dollar has strengthened, hitting a record high against the Chinese yuan, while the Canadian dollar fell to its lowest level since 2003. "The prospect of a long and protracted trade dispute between the world's two largest economies is causing investors to seek safe havens today," said Tim Waterer, chief market analyst at financial services firm KCM Trade. He also added, "Another concern for investors is which countries might be the next target of Trump's tariffs."

The tariffs announced by the Trump administration over the weekend target the US's three largest trading partners, and the US president has threatened that he may not stop there. Trump has also vowed to impose tariffs on the European Union "very soon." Charu Chanana, chief investment strategist at investment bank Saxo, warned that while tariffs may be beneficial for the US economy in the short term, they pose significant risks in the long run. She added, "The repeated use of tariffs will encourage other countries to reduce their dependence on the US, thereby weakening the global role of the dollar."

Trump said he would be speaking with the leaders of Canada and Mexico on Monday to discuss the tariffs, which are due to take effect at midnight on Tuesday. Exports from those two countries to the US will face a 25% tariff, while Chinese goods will face an additional 10% levy.