Equity markets retreat, dollar gains as Trump fires tariff warning

HONG KONG, China — Stock markets fell and the dollar rallied Tuesday after Donald Trump warned he would impose huge new tariffs on China, Mexico and Canada on his first day in office, dealing a blow to hopes of a more moderate approach to trade policy.

The former and next president said on his Truth Social account that he would hammer the United States' largest trading partners in response to the illegal drug trade and immigration.

The news dampened optimism that his pick to lead the Treasury, Scott Bessent, could temper the tycoon's assertiveness, with fears now of another trade war with China and warnings that the move -- along with promised tax cuts -- will reignite US inflation.

"On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25 percent tariff on ALL products coming into the United States, and its ridiculous Open Borders," he wrote.

In another post, he added that he would hit China with a 10 percent tariff "above any additional Tariffs" on all of its products entering the US, citing Beijing's failure to tackle fentanyl smuggling.

Liu Pengyu, a spokesman for China's embassy in the United States, told AFP that "no one will win a trade war", while the foreign ministry later said it would be "open to dialogue" with Washington.

Trump's announcement fuelled a sell-off across Asian markets, while London, Paris and Frankfurt opened on the back foot.

The dollar surged around one percent against its Canadian equivalent and Mexico's peso as well as the Chinese yuan. However, the yen strengthened thanks to its safe haven status.

"In a striking return to hardline policies, President-elect Trump has dramatically escalated tensions with a brash promise to impose a sweeping 25 percent tariff on all imports from Canada and Mexico the moment he reassumes office," said SPI Asset Management's Stephen Innes.

He said the declaration "shatters any lingering hopes that... Scott Bessent might usher in an era of moderation".

"Initially hailed as a beacon of stability, Bessent's influence now seems overshadowed by a resurgence of Trump's uncompromising 'America First' doctrine, which starkly excludes even