US President Trump escalated his surprise tariff threats against Mexico on Friday, triggering alarm about the likely economic fallout, spooking global markets and raising the prospect of US trade wars on multiple fronts.

Traders work on the floor of the New York Stock Exchange (NYSE) on May 31, 2019 in New York City.
Traders work on the floor of the New York Stock Exchange (NYSE) on May 31, 2019 in New York City. (Spencer Platt/Getty Images / AFP)

Investors fled stocks for safe-haven assets on May 31 after being spooked by the latest salvos fired in the global trade war.

With US President Donald Trump announcing tariffs on all Mexican imports and China, investors piled into low-risk assets, sending the yield on 10-year German government bonds, or Bunds to a record low.

On Wall Street, the Dow was down 0.8 percent in midday trading.

The yen, another safe-haven investment, shot higher. Because this makes Japanese exports more expensive, Tokyo's main stocks index tumbled 1.6 percent.

In European trading, the biggest faller was Frankfurt, dropping 1.5 percent.

The dollar hit a six-month high against the Mexican peso at 19.8279 pesos to the dollar.

Oil prices dived to their lowest levels since early March on Trump's move against Mexico and also owing to a smaller-than-expected drop in US crude supplies, traders said.

Trump's Twitter announcement late Thursday of a five percent tariff on all goods from Mexico starting June 10 was aimed at forcing the country to stem a flow of "illegal migrants" crossing the border into the US. 

On Friday, Trump said it was time for Mexico to "take back" the country from drug cartels, claiming that his newly announced tariffs would help stop the flow of narcotics over the border.

Accord at risk

Trump had only recently kick-started the process of ratifying a new North American trade pact by removing all tariffs on aluminum and steel, but he has now put the accord at risk, according to experts.

Trump had also recently put off hiking tariffs against European and Japanese cars, which had reassured markets.

The announcement of the new tariffs against Mexico "throws open to question the integrity of any trade deal that is signed off in the future with China, and or the European Union," said CMC Markets UK analyst Michael Hewson.

US-China trade war 

Trump's action comes amid a protracted trade war between the United States and China.

The president's tariff hike on $200 billion in Chinese goods earlier this month "may already be undermining foreign demand," analyst Julian Evans-Pritchard of consultancy Capital Economics wrote in a research note.

China is retaliating by raising tariffs on $60 billion worth of US goods on Saturday, while official data on Friday showed that the Asian nation's manufacturing activity contracted more than expected in May.

Also on Friday, China announced it would release a list of "unreliable" foreign companies and individuals, striking back after the United States targeted telecom giant Huawei in their escalating trade war.

Source: AFP