04:25 PM EDT, 04/08/2025 (MT Newswires) -- The Toronto Stock Exchange fell for a fourth-straight session on Tuesday, dropping nearly 900 points from the day high after the United States said it is imposing a 104% tariff against China tonight, setting up the prospect of trade war between the world's two largest economies that promises to drag down global trade.

The S&P/TSX Composite Index closed down ended the session down 352.56 points to 22,506.9, well below the early high of 23,394 points. Among sectors, Health Care and Energy, down 8.47%, and 4.82%, respectively, were among the big decliners.

On the home front, a brewing trade war between Canada and the United States is set to percolate a bit more with Finance Minister Francois-Philippe Champagne confirming 25% tariff on American-made autos will take effect tonight, in retaliation for U.S. import tariffs on vehicles.

On the wider front, but relevant to Canada and every other nation, Bloomberg News noted China has vowed to "fight to the end" on tariffs after Trump doubled the levy on its exports. Chinese Premier Li Qiang said his country has ample policy tools to fully offset any negative external shocks, and reiterated his optimism about the growth of the world's second-largest economy in 2025, despite the latest tariff threat from US President Donald Trump.

Interestingly, U.S. Republican Representative, Pat Fallon, is cited by Bloomberg as saying he expects the tariffs will cause short-term pain that will evaporate in months. Bloomberg cited the Texas Republican saying a trade war would lead to China's "slow isolation" as countries strike deals with the White House. Pressure would mount on China to come to the bargaining table, Fallon added, and the U.S. could work to decouple from it.

These comments tally with those of a Macquarie strategist who in a note outlined 'cold war' scenarios for global trade. The note was published before the new China tariffs were announced.

Thierry Wizman, Global FX & Rates Strategist at Macquarie, said "the thing about tariffs is that they induce more tariffs". Wizman noted that if exports from Asia don't flow to the U.S., Asia may dump its excess production on Europe, inducing Europe to put up its own tariffs on imports from Asia. And so on. As such, Wizman said, economists often talk of two stable equilibria: one, complete autarky, where all countries raise barriers to trade; or two, free trade, where global 'peace talks' avert 'world war trade'.

But, Wizman added, there are also two other 'cold war' scenarios. Three, Europe, Asia, and others team up to isolate the U.S. from their respective markets, and four, the U.S. becomes autarkic; or the U.S. teams up with Europe, the rest of the Western Hemisphere and Asian allies to isolate China. "Two blocs, each internally 'free', are also plausible," Wizman noted.

According to Wizman, isolating China, cold war scenario four, was probably the Trump administration's strategy all along. "But Trump has had a 'funny' way of going about it: using tariffs on everyone at first as the way to get there."

The next few months will prove if the 'carrot' of diplomacy and the 'stick' of tariffs gets the United States to its preferred cold war scenario, or if China induces the world to isolate the U.S. instead, Wizman said. "For a variety of reasons, we still think that (cold war scenario four) is the likelier outcome, but it will take time to play out, especially in view of the myriad of bilateral discussions needed to get us there," he added.

Of commodities today, gold prices rose late afternoon Tuesday on a weaker dollar after three days of losses amid market turmoil that pushed the price of the metal down 6% from its April 2 record high. Gold for June delivery was last seen up $26.00 to US$2,999.60 per ounce.

But West Texas Intermediate crude oil closed under the US$60.00 mark for the first time since February, 2021, on Tuesday as the tariff battle between the United States and China hotted up. WTI crude for May delivery closed down $1.12 to settle at US$59.58 per barrel while June Brent oil was last seen down $2.36 to US$61.85.