Tariffs Trade War Reshapes Markets and Alliances

The escalating trade war triggered by President Trump’s sweeping tariffs on Canada, Mexico, and China is sending shockwaves through global markets, trade relationships, and currency movements. From retaliatory actions by Beijing and Ottawa to mounting pressure on the US dollar and Canadian dollar, the economic and geopolitical landscape is rapidly shifting.

President Donald Trump has imposed 25% tariffs on most imports from Canada and Mexico while doubling tariffs on Chinese goods to 20%, impacting around $1.5 trillion in trade. Canada and China quickly announced retaliatory tariffs, and Mexico is expected to follow. The move raises fears of slower US economic growth, higher consumer prices, and legal challenges, while markets slumped in response. The tariffs, some of the steepest since the 1930s, are part of Trump’s broader agenda to pressure trading partners and boost domestic manufacturing, though critics warn they could fuel inflation and disrupt critical supply chains, particularly in the auto sector. Further tariffs on Europe and other sectors are expected soon, escalating global trade tensions.

China retaliated against President Trump’s latest tariffs by imposing up to 15% duties on US goods, including soybeans, chicken, and other farm products. Beijing also added US firms to its unreliable entity list and restricted some dual-use exports. While China’s response was relatively measured, targeting select industries, it highlights growing tensions as both sides brace for a prolonged trade fight. US soybean futures fell, and China continues to shift its agricultural imports toward Brazil. Despite the escalation, Beijing appears to be leaving room for potential negotiations with Washington.

Following a multi-month uptrend that culminated in a February 3rd peak at 1.47920, USDCAD has retraced sharply, declining over 2.7% in the weeks since. This correction was driven by a confluence of fundamental pressures, most notably President Trump’s announcement of 25% tariffs on Canadian goods, coupled with a subsequent one-month delay in their implementation — events that injected volatility and uncertainty into the pair’s trajectory.

The pullback ultimately found technical support at 1.41501, from which the pair rebounded, supported by a combination of improving sentiment and favorable technical factors.

From a technical standpoint, USDCAD is currently trading above both the 20-period and 50-period Exponential Moving Averages (EMAs), reinforcing a broadly bullish outlook. The formation of a Golden Cross further supports this constructive bias.

Momentum indicators also align with this view. The Momentum Oscillator remains above the key 100 threshold, indicating persistent upside pressure, while the Relative Strength Index (RSI) holds above 50, reflecting sustained buying interest.

If the current technical backdrop remains intact, upside targets to monitor include 1.46589, 1.47920, and 1.51887. Conversely, should bearish forces reassert control, key support levels come into focus at 1.43702, 1.42707, and 1.41501.

Given the prevailing bullish technical signals and the potential for further tariff-related headlines to inject volatility, the near-term bias for USDCAD leans cautiously bullish, with upside momentum likely to persist unless a significant shift in sentiment or policy emerges.

President Trump’s tariff plans aim to revitalize American manufacturing, raise revenue to help fund tax cuts and use tariffs as a diplomatic tool to pressure trading partners on issues like migration and drug trafficking. Trump believes tariffs will protect US companies from unfair competition, bring factories back to American soil, and reduce reliance on income taxes by replacing some government revenue with tariff income. He also sees tariffs as a more effective alternative to sanctions, using them to gain leverage in negotiations with both allies and adversaries.

Canada retaliated against President Trump’s tariffs by imposing 25% duties on $107 billion worth of US goods, including cars, steel, and aluminum. Prime Minister Justin Trudeau vowed that tariffs would remain until the US dropped its levies. Provinces like Ontario are also threatening to block US companies from government contracts and cut off key exports like nickel and energy. The escalating trade war could severely impact both economies, with the Bank of Canada warning it could wipe out Canada’s growth over the next two years.

The escalating tariff war between the United States, Canada, and China highlights the growing strain on global trade relationships and economic stability. With both Canada and China responding forcefully to President Trump’s sweeping tariffs, the risk of prolonged economic disruption, higher consumer costs, and slower growth is mounting. As trade tensions intensify, markets remain vulnerable to volatility, and the US dollar, Canadian dollar, and key commodities face increasing uncertainty. Whether Trump’s trade strategy will achieve its goals or trigger broader economic fallout remains to be seen.