The Current US Trade Wars: What’s Happening and How It Impacts the Market

One of the major reasons for bumps and dips?

The ongoing trade wars - particularly between the US and countries like China.

But whats really going on with these trade disputes?

And more importantly, how do they affect our wallets and the market?

At its core, a trade war happens when countries impose tariffs (taxes on imports) on each other. This is usually done to try and protect domestic industries, or to force other countries to meet certain trade demands.

The US has been involved in multiple trade conflicts, but the most talked-about one in recent years has been with China.

Under former President Trump, the US imposed hefty tariffs on billions of dollars' worth of Chinese goods, aiming to address issues like intellectual property theft, forced technology transfers, and the growing trade deficit between the two nations.

While President Biden’s administration has shifted the tone, many of those tariffs still remain in place, and the US-China relationship is far from smooth.

On the flip side, China has retaliated by slapping tariffs on US goods, hitting everything from agricultural products to automobiles.

This tit-for-tat game has created a tense global atmosphere.

Trump’s Trade Tensions with Canada and Mexico:

When Donald Trump became president, one of his first big moves was to challenge NAFTA (North American Free Trade Agreement), a deal that had been in place since 1994 and essentially made trade between the US, Canada, and Mexico much smoother. Trump argued that NAFTA was unfair to the US, particularly when it came to job losses in manufacturing and trade imbalances, especially with Mexico.

In 2018, after a lot of back-and-forth negotiations, Trump pushed for the US-Mexico-Canada Agreement (USMCA), which replaced NAFTA.

It was seen as a "new and improved" trade deal—at least from Trump's perspective.

For Trump, the USMCA was about better terms for American workers, specifically in the areas of automotive production, agriculture, and intellectual property.

While the USMCA was signed and came into effect in 2020, the transition from NAFTA to USMCA wasn’t without tension.

Trump’s tough rhetoric and constant threats of tariffs on Canadian and Mexican goods created a lot of uncertainty in the market.

Trump’s Tariff Threats: A Bone of Contention with Canada and Mexico

Even after the USMCA was signed, Trump wasn’t exactly playing nice with his North American neighbors. A major flashpoint came with the imposition of tariffs on steel and aluminum imports in 2018.

The US placed a 25% tariff on steel and 10% tariff on aluminum, and, in many cases, Canada and Mexico were hit hard by these new duties.

For Canada, the tariffs were particularly controversial. Canada is the largest supplier of steel to the US, and these tariffs were seen as a slap in the face.

In response, Canada retaliated by imposing its own tariffs on US goods, including products like whiskey, ketchup, and orange juice.

This standoff created a lot of unease in markets, especially in industries where trade between the US and Canada is critical, like automotive manufacturing and agriculture.

Mexico, too, was caught in the crossfire.

Trump’s tariff threats didn’t stop with steel. He also floated the idea of imposing tariffs on Mexican goods if the country didn’t do more to curb illegal immigration across its border.

This made for a pretty tense atmosphere.

And let’s not forget that Mexico is one of the US’s largest trading partners, especially when it comes to exports like cars, electronics, and agricultural products.

As of February 3, 2025, the US and Mexico reached a new agreement regarding tariffs and trade that has further solidified their economic partnership.

The US had previously threatened to impose tariffs on Mexican automotive exports, but after intense negotiations, both sides have managed to avert these measures.

Under the new agreement, Mexico has committed to making significant improvements in its labor standards and environmental regulations in exchange for continued tariff-free access to US markets under the USMCA framework.

Additionally, both nations have agreed to create a new bilateral task force aimed at addressing trade imbalances, particularly in the agricultural sector, with specific focus on improving conditions for Mexican farmers. The deal also includes a renewed focus on joint efforts to combat human trafficking and drug smuggling at the southern border.

While tensions over migration and security concerns remain, this latest agreement highlights the growing trend of cooperation and compromise between the two countries, signalling a shift toward more strategic collaboration in trade and security matters.

The Market’s Reaction: Buckle Up

The stock market, which loves stability and predictability, doesn’t exactly thrive in this kind of environment. Trade wars create uncertainty, and uncertainty makes investors nervous.

When there’s a threat of tariffs, businesses that depend on international trade—like tech companies, manufacturers, and even farmers—are faced with higher costs and potentially lower profits. And when businesses struggle, so does the stock market.

For example, industries like agriculture have been hard-hit by tariffs. US farmers, especially those growing soybeans, corn, and pork, faced a huge loss in demand from China when Beijing imposed tariffs on these products. Farmers saw their exports drop, leading to financial losses. On the other hand, companies like Apple, which manufacture a large portion of their products in China, are facing higher costs to bring those goods back to the US.

Long-Term Effects on Consumers

As trade wars drag on, it’s not just businesses that feel the impact. Consumers do, too.

Higher tariffs typically lead to higher prices on imported goods.

Think about it: if a US company has to pay more to import materials or finished products from another country, those costs usually get passed down to consumers.

That means the prices of things like electronics, clothing, and even food could go up.

And if those prices climb too much, consumers might start cutting back on spending—an issue that could slow down economic growth.

After all, when people aren’t buying as much, businesses can see their profits shrink, leading to less hiring, lower wages, and a slowdown in overall economic activity.

How Does This Affect the Global Economy?

Trade wars aren’t just a problem for the US.

Global markets get caught in the crossfire.

The knock-on effects can be seen in countries that rely on trade with both the US and China.

When one side starts imposing tariffs, it disrupts supply chains and pushes up prices. For example, countries that import raw materials from China to make products for the US market may face delays and higher costs. This could slow down manufacturing and hurt industries worldwide.

For countries like Japan, South Korea, and the European Union, which depend on smooth trade relationships with both the US and China, this uncertainty makes it harder to plan long-term.

Trade wars also divert attention from other global issues, like climate change or technological advancement, which could be more important for future growth.

Will Things Get Better Anytime Soon?

It’s tough to say.

While there have been moments of hope—a trade deal here, a tentative agreement there—the core issues between the US and China, especially over intellectual property and technology, remain unresolved. Plus, with global tensions rising in various regions, it’s hard to predict when or if trade wars will come to a complete halt.

One thing is clear: the market isn’t a fan of uncertainty, and trade wars inject a lot of that into the system.

Until things stabilize, businesses will need to adjust, consumers will feel the pinch, and the market will likely continue to experience some turbulence.

What Can We Do About It?

For everyday investors, navigating a trade war environment can be tricky.

It might be a good idea to pay attention to industries that are less affected by international trade—like local services, healthcare, and energy.

Alternatively, global companies that have diversified supply chains can sometimes weather these storms better than those relying heavily on one country.

For consumers, it’s a matter of being more mindful of prices and potential delays. Tightening the budget a bit or finding alternatives to more expensive goods can be a smart move.

In the end, trade wars are a reminder that the world economy is interconnected. What happens in one corner of the globe can have ripple effects that reach us all. And while it’s tempting to hope things will calm down soon, the reality is that trade tensions could continue to be a major factor in shaping the global market for the foreseeable future.

So, stay informed, stay flexible, and keep an eye on how these trade conflicts continue to unfold. The market’s next move? That’s still anyone’s guess.

For day traders, the current trade tensions are something to watch closely. Tariff announcements, changes in trade policy, and market reactions to these developments can cause sharp, short-term price movements.

Stocks in sectors like automotive, technology, and agriculture are particularly sensitive to these shifts.

A new round of tariffs or a policy shift can lead to volatility, which creates both risks and opportunities.

Staying on top of news related to trade wars and being ready to react quickly could make all the difference in your trading strategy, as market swings could be sharp and unpredictable in response to any new developments.

Huge opportunities will present over the next 12 months and beyond so make sure you stay up to date and make the most of these times!