February was the month in which the world and markets really paid attention to Donald Trump, with plenty of talk on tariffs sparking concerns over trade wars, even between the US and its allies.
Prospects of peace in Ukraine are also up in the air after the Trump administration appeared to side with Russia in blaming Ukraine for the war, with Trump himself even calling Zelensky a “dictator”.
Whilst the war in Ukraine is a significant event in itself, and peace would likely be beneficial to not just its people but to markets as well, this month’s update will focus more on Trump’s new approach to tariffs, which is more aggressive and far-reaching than his first term, and what this may mean for US economic growth.
President Trump’s introduction of tariffs of 25% on goods entering the US from Canada and Mexico lasted for just 24 hours, as he suspended those tariffs for 30 days following talks with Claudia Sheinbaum – Mexico’s president – and Justin Trudeau – the prime minister of Canada. Trump sees tariffs as a weapon to force Canada and Mexico to do more on border security, with Trump blaming both countries for the US’s immigration concerns and for the drug fentanyl reaching America’s streets. The tariffs were suspended after both countries agreed to bolster border security, although most of these measures, particularly from Canada, were nothing new after being announced last year.
Trump also announced that the US would introduce 25% tariffs on all steel and aluminium being imported into the country, ending exemptions for Canada and the EU. Trump believes that by doing so, he is “simplifying” the rules and will increase domestic production – America is currently the world’s largest importer of steel, with Canada and Mexico as its top three suppliers. Canada also accounted for over half of the aluminium imported into the US in 2024. Both Canada and the EU vowed that retaliatory tariffs would be introduced.
Along with this, Trump threatened 25% tariffs on imported cars – again, in an attempt to boost domestic car production – and said he was considering tariffs on imports of semiconductors and pharmaceuticals.
China began dispute proceedings at the World Trade Organisation over the additional 10% tariff imposed by the US, although this move is unlikely to be anything more than symbolic. China also announced retaliatory tariffs on selected American imports, including energy sources such as LNG, coal, and crude oil.
The 30-day pause on tariffs did not result in a retraction from the US, with Trump announcing that the tariffs on Canada, Mexico, and China would come into effect from March 4th. He also threatened sweeping 25% tariffs on the EU that would go into effect “very soon”, saying that they would apply to “cars and all other things”.
Trump’s cavalier attitude to tariffs increases the risks of a trade war, and markets are concerned as a result. His belief that trade wars are a good thing and “easy to win” flies in the face of general economic consensus. Trump’s strong push for his “America First” agenda means that even allies face high tariffs, and no one can be entirely certain of Trump’s end goal. Whilst it seems that he wants to bring production of all goods back to America, it may not be entirely possible. For example, whilst the US’s trade deficit with China has fallen, its overall trade deficit has increased as companies have moved production to other countries. There is no guarantee that tariffs will force those companies to move production to the US, which may be why he is seemingly out to target as many nations as possible. An index of uncertainty over US trade policy has reached record highs, and the two Trump terms are standouts in terms of how far above the average they lie.
The US market, in particular, has been coming under pressure due to poor economic data and cooling sentiment after initial positivity over Trump coming back into power. Canada and Mexico would potentially be at risk of recession, and weaker growth in the US is certainly a possibility. The tariffs Trump wants to bring in are much wider than during his first term, which increases their effect but also means fewer workarounds to funnel goods through other countries. Inflation is likely to rise in the US, and the impact on growth will depend upon how much of the increased import costs are passed onto consumers by businesses. Rising prices will discourage consumption and cause weaker growth.
For an excellent summary of which tariffs are on Trump’s administration and what they may mean, we recommend watching this quick video summary from Guy Foster, Chief Strategist at RBC Brewin Dolphin, from their ‘Markets in a Minute’ series.
Despite uncertainties, European markets outperformed the US and were boosted by a possible end to the war in Ukraine. However, following the car crash of Trump and Vice President Vance ambushing Ukrainian President Zelensky in the Oval Office, how close peace may be remains highly uncertain. The Trump school of diplomacy is anything but diplomatic.
Worldwide, global markets were down slightly by 0.8% in February, although the last 10 days of the month saw a fall of 2.6%.
The Bank of England reduced its benchmark rate from 4.75% to 4.5%, with two members of its committee even voting for a larger cut of 50 basis points.
Spotify reported its first full month of profitability since launching in 2008, with the number of monthly users rising to 675 million in the fourth quarter of last year.
Japan had its third consecutive quarter of GDP growth in Q4, and nominal GDP surpassed JPY 600 trillion for the first time last year.
Hackers stole $1.5 billion worth of Ethereum from cryptocurrency firm Bybit. The Dubai-based company’s founders told users that their funds were safe and that it would fully refund anyone affected.
Nvidia announced solid earnings on February 26th, with revenues up 78% year-on-year and quarterly net profit up to $22 billion. Although the stock beat analysts’ expectations, it once again didn’t beat them by enough, and the price fell by 8.5% before recovering 4% by the end of the week.
