Asian markets mostly fell Monday on fresh trade fears after Donald Trump’s threat to impose huge tariffs on Colombia in retaliation for its refusal to accept deportation flights from the United States.
Traders were also assessing the impact of a new, cheaper Chinese generative AI programme amid claims it can outperform big-name rivals and worries that a recent surge in the sector may be called into question.
Equities enjoyed a healthy run-up last week on the hope that Trump 2.0 will take a less hardball approach to global trade as he held off imposing stiff levies on China and other partners immediately on taking office, as he warned he would.
His comments that he would “rather not” hit Beijing, and a signal of openness to a trade deal added to the optimistic tone.
However, news Sunday that he would hit Colombian goods with a 25 per cent tariff rising to 50 per cent next week and revoke the visas of government officials set off alarm bells.
The move came after President Gustavo Petro blocked deportation flights from the United States.
In response to Trump’s decision, Petro initially announced retaliatory levies of 25 per cent on imports from the United States.
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But Bogota later backed down and agreed to accept the deported citizens, with Foreign Minister Luis Gilberto Murillo saying they had “overcome the impasse”.
“Actions speak louder than words. The situation with Colombia just shows how little it takes for Trump to use tariffs as a negotiation tool,” said Dane Cekov at Sparebank 1 Markets.
Traders were already gearing up for a big week that will see the Federal Reserve hold its first policy meeting of the year.
While it is widely expected to hold rates, investors will be keeping a close eye on its statement and comments from Federal Reserve head Jerome Powell.
There is a concern that Trump’s pledges to impose tariffs while slashing taxes, immigration and regulations could reignite inflation and force the central bank to pause its rate cuts or even hike them again.
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