Tariffs Threaten a Global Trade War

Yields whipsaw and close higher in a volatile session. Treasury yields declined overnight and remained lower this morning after China and Canada announced retaliatory tariffs on the U.S, spurring additional fears about the potential for prolonged trade wars. However, yields surged in the afternoon following news from Commerce Secretary Howard Lutnick that President Trump may reduce levies against Canada and Mexico tomorrow. Yields closed 2-9 bps higher across a steepening curve, pushing the 2-year yield to 3.99% and the 10-year yield above 4.24%. Meanwhile, the S&P 500 (-1.22%) and NASDAQ (-0.35%) rallied from intraday lows throughout the afternoon following Lutnick’s comments, though a late sell-off broke much of the momentum.

China and Canada announce retaliatory measures against the U.S. China announced new 10-15% tariffs on American agricultural products and separate export controls on dozens of U.S. companies last night in response to tariff increases announced by President Trump yesterday. The measures are set to become effective on March 10th. Meanwhile, Canada responded with levies on $107B worth of U.S. exports, and Canadian Prime Minister Trudeau argued that trade wars are “a very dumb thing to do” and that the measures will “harm American families.” Tomorrow’s potential compromise between the U.S. and Canada could lead to a pullback in the levies, though progress with China may be more difficult to come by.

President Zelensky expresses openness to peace. After last week’s heated meeting between Presidents Zelensky and Trump, Zelensky said today that the strained meeting with Trump was “regrettable” and that Ukraine is “ready to come to the negotiating table as soon as possible to bring lasting peace closer.” The comments came after President Trump announced a freeze on all military aid to Ukraine until the country demonstrates a commitment to peace. The recent developments have highlighted Trump’s starkly different approach to the crisis in Ukraine vs. the Biden administration and stoked fears of a U.S. decoupling from its traditional NATO allies. In turn, a key European defense ETF climbed ~10% in recent days as European nations attempt to reduce their reliance on protection from the U.S.