Trump, tariffs and the dollar collapse: what’s happening to the currency market?
5 March 17:22
The recent imposition of a 25% duty on Canadian imports by US President Donald Trump has led to a significant drop in the value of the US dollar. This was reported by Komersant ukrainskyi with reference to Reuters.
Contrary to expectations that the imposed duties would support the dollar, the currency experienced its most significant three-day drop since November 2022: the dollar index (DXY) fell by 2.5% to $104.95.
The Canadian dollar weakened by 0.23% to $1.4425 per dollar. The Mexican peso partially recovered its position after the morning’s fall and closed at 20.6141 per dollar.
Financial markets are concerned that the tariff hike could hit the U.S. economy, which is already showing signs of slowing.
Experts explain that this unexpected depreciation is due to several factors:
1. Political uncertainty. Aggressive trade measures have heightened concerns about possible retaliation from Canada, which has led to increased market volatility and reduced investor confidence in the dollar.
2. Concerns about economic growth. The duties raised concerns about a slowdown in economic growth, prompting investors to reassess the dollar’s strength.
3. Erosion of the safe haven status. The recent decline in the dollar indicates a change in investor sentiment, possibly due to rising inflationary pressures and a widening current account deficit.
Thus, the fall of the US dollar following the introduction of tariffs on Canadian goods reflects a complex interplay between political uncertainty, concerns about economic growth, and a shift in investor perceptions of the dollar’s traditional safe-haven status.
What you need to know about the trade war between Canada and the United States
TheUnited States and Canada have entered a new phase of the trade war: Washington is ready to increase tariffs for Canada if Ottawa imposes them on American goods.
“Please make it clear to Governor Trudeau that if he retaliates against the United States, our reciprocal tariff will immediately increase by the same amount,” Donald Trump wrote on his social media page on March 4.
This was the US leader’s response to Canadian Prime Minister Justin Trudeau ‘s statement that the US had launched a trade war against Canada. After all, on March 4, US punitive duties on Canada and Mexico came into effect. Now imports from these countries are subject to a 25% tax, and a 10% duty is imposed on energy products from Canada.
On the same day, the Premier of the Canadian province of Ontario, Doug Ford, announced at a briefing the anti-American measures he would take in response to the duties imposed by the United States on Canadian goods:
- All American companies will be banned from public procurement.
- The province terminates the contract with Elon Musk’s Starlink.
- If the tariffs are maintained, Ontario will immediately apply a 25% surcharge to electricity exported to New York, Michigan, and Minnesota.
- Ontario will impose a 25% tax on electricity exports to the United States.
What preceded it
In early 2025, escalating trade tensions between the United States and Canada culminated in the imposition of significant tariffs on each other’s goods, marking a significant change in North American trade relations.
US tariffs on Canadian imports
on February 1, 2025, President Donald Trump declared a national security emergency under the International Emergency Economic Powers Act and the National Emergencies Act, announcing the imposition of 25% tariffs on all Canadian imports, including a 10% tariff on Canadian crude oil and energy products. The administration explained these measures as necessary to combat illegal immigration, the flow of fentanyl, and to reduce the US trade deficit.
Canada’s response
In response, Canadian Prime Minister Justin Trudeau condemned the US tariffs as “unjustified” and immediately announced retaliatory measures. Canada imposed a 25% tariff on 30 billion Canadian dollars (approximately 20.7 billion US dollars) worth of American goods, including products such as orange juice, peanut butter, wine, spirits, beer, coffee, household appliances, clothing, footwear, motorcycles, cosmetics, and pulp and paper products. Trudeau emphasized that these measures are necessary to protect Canadian interests and will remain in effect until the US lifts its trade actions.
Economic consequences
The mutual introduction of tariffs has raised concerns about the potential economic consequences for both countries. Experts predict an increase in consumer prices, disruptions in supply chains, and potential job losses in industries that depend on cross-border trade. The tariffs have also led to instability in financial markets, with major indices such as the S&P 500 and Dow Jones experiencing significant declines amid fears of a broader trade war.
