ASX set to retreat, Wall Street volatile as Trump sparks trade war

China responded to new US tariffs by announcing it will impose additional tariffs of up to 15 per cent on imports of key US farm products, including chicken, pork, soy and beef, and expanded controls on doing business with key US companies. Canada plans on slapping tariffs on more than $US100 billion ($161 billion) of American goods over the course of 21 days. Mexico also plans tariffs on goods imported from the US.

The tariffs are prompting warnings from retailers, including Target and Best Buy, as they report their latest financial results. Target slumped 2.3 per cent despite beating Wall Street’s earnings forecasts. there will be “meaningful pressure” on its profits to start the year because of tariffs and other costs.

Best Buy plunged 11.5 per cent after giving investors a weaker-than-expected earnings forecast and warning about tariff impacts.

“International trade is critically important to our business and industry,” said Best Buy CEO Corie Barry.

Barry said China and Mexico are the top two sources for products that Best Buy sells and it also expects vendors to pass along tariff costs, which would make price increases for American consumers likely.

The warnings are coming in as companies close out their latest round of earnings reports. Companies in the S&P 500 reported broad earnings growth of 18 per cent in the fourth quarter. Wall Street has already trimmed expectations for the current quarter to about 7 per cent growth from just over forecasts of 11 per cent at the beginning of the year.

Worries about profits follow a series of economic reports with worrisome signals that include US households becoming more pessimistic about inflation and pulling back on spending. Consumer spending has essentially driven US economic growth in the face of high interest rates.

Wall Street has been hoping that the Federal Reserve will continue lowering interest rates in 2025. The central bank has signalled more caution, though, partly because of uncertainty surrounding the economic impact of tariffs. The Fed is expected to hold rates steady at its upcoming meeting later in March.

The Fed raised interest rates to their highest level in two decades in order to tame inflation. It started cutting its benchmark rate in 2024 as the rate of inflation moved closer to its target of 2 per cent. But, inflation remains stubbornly just above that target and tariffs threaten price increases that could fuel inflation.

In the bond market, Treasury yields were mixed. The yield on the 10-year Treasury rose to 4.17 per cent from 4.16 per cent late Monday. It’s still down sharply from last month, when it was approaching 4.80 per cent, as worries have grown about where the US economy is heading.

The yield on the 2-year Treasury fell to 3.90 per cent from 3.95 per cent late Monday.

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