Markets react to Trump's tariffs as he warns UK 'out of line' on trade with US

Stock markets tumbled on Monday as Donald Trump's threatened tariffs on goods from Canada, Mexico and China sparked fears of a global trade war.

It's the first trading day since the US president made good on his promise to slap high taxes on imports to the US.

He announced higher-than-expected 25% tariffs on Mexican and Canadian goods - only for a temporary ceasefire to later be agreed with his Mexican counterpart that will delay any US penalties for at least a month.

Before that development, Asian markets were the first to react to confirmation of tariffs with Japan's Nikkei falling nearly 3% while South Korea's Kospi was also down more than 2.5%.

Both countries are export-heavy nations through car manufacturing, which is vulnerable to further US import tax hikes.

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The stock market plummet continued as markets opened across Europe, with major indices in the EU seeing sharper declines than in the UK earlier in the day after Mr Trump pledged that the trading bloc would "definitely" see tariffs in future.

He was less certain about penalising the UK but the FTSE 100 still closed 1% down, recovering some poise in the afternoon on news of Mexico's temporary Trump truce.

He held off after his southern neighbour agreed to send 10,000 soldiers to the border to stem the flow of illegal drugs.

The DAX in recession-hit Germany and French CAC also pared losses on the news - as did US stock markets on Wall Street. The S&P 500 was just 0.4% down heading towards the close though Trump cheerleader Elon Musk's Tesla was more than 5% down.

Manufacturers such as carmakers and beer producers were among the biggest losers globally.

The dollar strengthened widely earlier with the peso in Mexico and Canadian dollar worst hit - the latter by almost one-and-a half cents.

The euro was another big casualty, dropping almost a cent at €1.0270 at one stage versus the dollar while the pound was largely flat.

Euro weakening saw sterling hit €1.2051 - up almost a cent on the day.

'The trade war has started'

"Trump's trade war has started," said Alvin Tan, head of Asia currency strategy at RBC Capital Markets in Singapore as the market reaction took hold.

Tariffs against Canada and China are still due to take effect on Tuesday.

The US president has also threatened to impose steeper tariffs elsewhere, telling reporters import taxes will "definitely happen" with the EU.

He said the UK "is out of line" on trade with the US and told reporters "we'll see what happens". But he said he was confident the situation "can be worked out" without tariffs.

Mr Trump is still set to speak to the leader of Canada, Justin Trudeau, later on Monday and has warned against retaliating to his tariffs, saying: "We can play the game all they want."

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Over the weekend. he announced he was imposing 25% tariffs on imports from Canada and Mexico, and hit China with a 10% levy. Both Canada and Mexico hit back with retaliatory tariffs.

However, the US president returned to Washington from Mar-a-Lago on Sunday night and brushed aside the reprisals.

"I love the people of Canada. I disagree with the leadership of Canada. And something's gonna happen there," he said.

"If they want to play the game, I don't mind. We can play the game all they want."

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Mr Trump said Americans could feel "some pain" from the developing trade war - and claimed Canada would "cease to exist" without its trade surplus with the US.

In a post on his Truth Social platform: "WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID."

The Trump administration has said the tariffs is plans are aimed at stopping the spread and manufacturing of the opioid fentanyl, as well as pressuring America's neighbours to limit illegal immigration to the US.

But it risks a trade war and higher prices for American consumers.

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Meanwhile, Canada's high commissioner to the UK Ralph Goodale, speaking to Sky News' Kamali Melbourne, had a warning for allies.

He said: "I would just say to our allies around the world watch this closely, you could be next, and in the meantime, stand by your friends."

He added Mr Trump's words were a "salesman's pitch" and despite the historically close relationship between the countries "we don't want to be each other".

(c) Sky News 2025: Markets react to Trump's tariffs as he warns UK 'out of line' on trade with US