Why did the ASX 200 suddenly plummet on Tuesday?

The S&P/ASX 200 Index (ASX: XJO) is on a rollercoaster today as newly inaugurated United States President Donald Trump talks up tariffs on major US trading partners.

The ASX 200 rose strongly by 1.27% over the first 80 minutes of trading to hit an intraday peak of 8,453.3 points. This was a six-week high for the benchmark index.

Then news broke that Trump, who was inaugurated in the early hours of this morning Australian time, had told US reporters that he may impose a 25% tariff on Mexico and Canada as soon as next month.

He had previously threatened to impose these tariffs on his first day in office. Perhaps no one believed the timing of this, but his naming of a date today appears to have rattled markets worldwide.

CBNC quoted Trump as saying: "We're thinking in terms of 25% on Mexico and Canada, because they're allowing a vast number of people (across the border)."

Trump went on to say the target date for the tariffs would be, "I think Feb. 1".

The ASX 200 rapidly retreated to give back all of its gains for the day.

In less than 15 minutes, the ASX 200 fell from its intraday high to an intraday low of 8,347.4 points just after noon. Interestingly, that was yesterday's exact closing value.

The ASX 200 has since rebounded to be trading at 8,405.9 points, up 0.7%.

Why did the ASX 200 plummet?

We already knew that Trump intended to place a 25% tariff on Mexico and Canada.

He announced it back in November as punishment for both countries failing to stem the flow of illegal migrants across the US border along with the drug fentanyl.

The bit that matters today is the timing of these tariffs. February 1 appears to be sooner than market analysts expected, and that's why we saw a sell-off on the ASX 200 today.

The ASX is affected by Trump's tariff remark because Australia is also a significant US trading partner.

Trump has previously pledged to impose 10% to 20% tariffs on all US trading partners and a 60% tariff on Chinese goods. He has set up the External Revenue Service to help collect the tariffs.

We do not know yet whether Australia will be able to negotiate itself out of tariffs, as the Turnbull Government did on steel and aluminium in 2018.

Trump's comment immediately caused the Aussie currency to sell off. It fell 1.3% to US62.09 cents.

Winners and losers on Tuesday

The top risers of the ASX 200 on Tuesday are Liontown Resources Ltd (ASX: LTR) shares, up 14.2%, following news that the miner's lithium output increased by 215% quarter-over-quarter in December.

Hub24 Ltd (ASX: HUB) shares are 11.6% higher after the wealth management platform provider issued another strong quarterly update.

The biggest fallers are Johns Lyng Group Ltd (ASX: JLG) shares, down 4.4%, and Tabcorp Holdings Ltd (ASX: TAH), down 3.7%.

The post Why did the ASX 200 suddenly plummet on Tuesday? appeared first on The Motley Fool Australia.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Hub24. The Motley Fool Australia has recommended Hub24 and Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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