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US faces retaliation from Canada and Mexico

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Experts warn of inflation, slower economic growth

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Trump says tariffs will 'definitely happen' with EU

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Stock markets fall, dollar surges, oil prices rise

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EU leaders meet to discuss tariff threat response

By Daphne Psaledakis, David Lawder and Bart H. Meijer

WASHINGTON/BRUSSELS, Feb 3 (Reuters) - Global financial

markets fell on Monday over tariffs imposed on Canada, Mexico

and China by U.S. President Donald Trump, while world leaders

steeled themselves to respond to his next moves, with the

European Union in the firing line.

Trump said his tariffs on the three largest U.S. trading

partners, which take effect on Tuesday, might cause Americans

some short-term pain, but "long term, the United States has been

ripped off by virtually every country in the world".

Global stock markets and currencies tumbled over

concerns that the tariffs would trigger an economically damaging

trade war. Futures for Wall Street's S&P 500 fell more than 1.7%

before the opening bell, on the heels of the year's biggest

daily losses on a string of Asian and European bourses.

Speaking at his Mar-a-Lago estate in Florida on Sunday, Trump

indicated that the 27-nation European Union would be next in the

firing line, but did not say when.

"They don't take our cars, they don't take our farm

products. They take almost nothing and we take everything from

them," he told reporters.

EU leaders meeting at an informal summit in Brussels on

Monday said Europe would be prepared to fight back if the U.S.

imposes tariffs, but also called for reason and negotiation.

Arriving at the talks, French President Emmanuel Macron said

if the EU were attacked in its commercial interests it would

have to "make itself respected and thus react".

Chancellor Olaf Scholz of Germany said the bloc could

respond if necessary with its own tariffs against the U.S., but

stressed it was better for the two to find agreement on trade.

Trump hinted that Britain, which left the EU in 2020, might

be spared tariffs, saying: "I think that one can be worked out".

The U.S. is the EU's largest trade and investment partner.

According to the Eurostat data from 2023, the United States had

a deficit of 155.8 billion euros ($161.6 billion) with the EU in

the trade of goods, offset by a surplus of 104 billion euros in

services.

EU foreign policy chief Kaja Kallas said there were no

winners in a trade war, and if one broke out between Europe and

the United States, "then the one laughing on the side is China".

TUESDAY DEADLINE

The tariffs on Canada, Mexico and China, outlined in three

executive orders, are due to take effect 12:01 a.m. ET (0501

GMT) on Tuesday.

Trump said he would speak on Monday with the leaders of

Canada and Mexico, which have both announced retaliatory tariffs

of their own, but downplayed expectations that they would change

his mind.

"They owe us a lot of money, and I'm sure they're going to

pay," Trump told reporters.

White House National Economic Council Director Kevin

Hassett suggested Washington was more satisfied with Mexico's

response so far than Canada's. He told CNBC that Mexico appeared

to be "very, very serious about doing what President Trump

said," but the "Canadians appear to have misunderstood the plain

language of the executive order".

Economists said the Republican president's plan to impose

25% tariffs on Canada and Mexico and 10% tariffs on China would

slow global growth and drive prices higher for Americans.

Trump says they are needed to curb immigration and narcotics

trafficking and spur domestic industries.

Financial market reaction on Monday reflected concerns about

the fallout from a trade war. Shares in Tokyo ended the day down

almost 3% and Australia's benchmark - often a proxy trade for

Chinese markets - dropped 1.8%. The mainland China market was

shut for Lunar New Year holidays.

Around lunchtime in Europe, Germany's DAX index was down

2%, France's CAC down 1.9% and Britain's FTSE 100 down 1.3%.

The Chinese yuan, Canadian dollar and Mexican peso all

slumped against a soaring dollar. With Canada and Mexico the top

sources of U.S. crude oil imports, U.S. oil prices jumped

more than 1%, while gasoline futures rose nearly 3%.

Trump's tariffs will cover almost half of all U.S. imports

and would require the United States to more than double its own

manufacturing output to cover the gap - an unfeasible task in

the near term, ING analysts wrote.

Other analysts said the tariffs could throw Canada and

Mexico into recession and trigger "stagflation" - high

inflation, stagnant growth and elevated unemployment - at home.

In Europe, economists at Deutsche Bank said they were

currently factoring in a 0.5% hit to gross domestic product

(GDP) should Trump impose 10% tariffs on the bloc.

NATIONAL EMERGENCY

A White House fact sheet gave no details on what Canada,

Mexico and China would need to do to win a reprieve.

Trump vowed to keep the sanctions in place until what he

described as a national emergency over fentanyl, a deadly

opioid, and illegal immigration to the United States ends.

China called fentanyl America's problem and said it would

challenge the tariffs at the World Trade Organization and take

other countermeasures, but also left the door open for talks.

Mexican President Claudia Sheinbaum vowed resilience and

said she would provide more details on Monday of the retaliatory

tariffs she ordered on the weekend. Canada said it would take

legal action under the relevant international bodies to

challenge the tariffs.

Automakers would be particularly hard hit, with new tariffs

on vehicles built in Canada and Mexico, burdening a vast

regional supply chain where parts can cross borders several

times before final assembly.

Shares in Volkswagen, BMW, Porsche

, Stellantis ( STLA ), and truckmaker Daimler Truck

all fell by about 5-6% in European trading on Monday.

Analysts at investment bank Stifel estimated that 8 billion

euros of VW's revenues would be impacted by tariffs and 16

billion euros of Stellantis ( STLA ).

($1 = 0.9765 euros)