Investing.com - U.S. President Donald Trump's decision to impose tariffs on America's closest trading partners means that markets may now need to take the rest of his agenda "literally rather than just seriously", according to analysts at Wolfe Research.
Over the weekend, Trump slapped 25% import tariffs on traditional trading partners Canada and Mexico, with Canadian energy products facing a 10% levy. A tariff of 10% was also placed on goods incoming from China.
The Wolfe Research analysts led by Tobin Marcus noted that many observers were previously skeptical that Trump would follow through with a series of threats around imposing levies, arguing that he would instead use the prospect of tariffs for leverage in trade negotiations.
They added that they did not think Trump would impose tariffs "of this magnitude" on economies with such strong ties to the U.S. economy and American businesses.
"He really did it," the analysts said in a note to clients. They argued that "[i]f [Trump]'s willing to take this step -- especially if these tariffs prove long-lasting -- then markets need to take more seriously the possibility" that he will follow through on earlier campaign threats to introduce 60% tariffs on China and unveil sweeping universal duties.
"If this new level of seriousness gets priced in suddenly, Monday could be a rough day for markets," the Wolfe Research analysts wrote.
The tariffs, which are due to come into effect on Tuesday, also stand to spark an escalating trade war, the analysts warned. Canada and Mexico have announced plans to roll out their own tariffs on U.S. goods, while China's Ministry of Commerce intends to challenge the actions at the World Trade Organization.
Economists have suggested the tariffs could cause a period of faster inflation and weaker growth in the U.S., and potentially fuel recessions in Canada and Mexico. Both countries rely heavily on trade relations with their larger neighbor.
Trump has said the measures may lead to some "short-term pain" for Americans. He added that more tariffs on the European Union would "definitely happen", although did not specify when they would be implemented.