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Financial market reactions to U.S. tariff announcements: Evidence from trade-surplus and trade-deficit countries

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  • Rao, Amar
  • Lucey, Brian
  • Kumar, Satish

Abstract

This study examines the financial market response to the U.S. tariff announcement on February 1, 2025, which imposed a 25 % tariff on imports from Mexico and Canada (except energy products at 10 %) and a 10 % tariff on China. The results reveal asymmetric market reactions: trade-deficit countries, which faced direct tariff impositions, exhibited muted and mixed responses, suggesting that investors had already priced in potential trade frictions or expected policy reversals. In contrast, trade-surplus countries experienced significant positive CAARs, reflecting investor optimism about potential trade reallocation benefits.

Suggested Citation

  • Rao, Amar & Lucey, Brian & Kumar, Satish, 2025. "Financial market reactions to U.S. tariff announcements: Evidence from trade-surplus and trade-deficit countries," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s154461232500724x
    DOI: 10.1016/j.frl.2025.107465
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    References listed on IDEAS

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    Cited by:

    1. Chen, Shuai & Li, Lingyi & Sha, Yezhou, 2026. "Cross-border ETFs and stock market synchronization," Finance Research Letters, Elsevier, vol. 88(C).
    2. Nie, Chun-Xiao, 2025. "Trump tariff policies shock information flows across major global equity markets," Finance Research Letters, Elsevier, vol. 86(PA).
    3. Kaczmarek, Tomasz & Demir, Ender & Rouatbi, Wael & Zaremba, Adam, 2026. "Protectionism and safe-haven demand: Sovereign bond reactions to the 2025 U.S. tariff announcement," Research in International Business and Finance, Elsevier, vol. 82(C).
    4. Bouri, Elie & Jalkh, Naji & Demir, Ender, 2025. "Higher-order co-moment contagion during Trump’s second presidential term: A trade policy uncertainty perspective," Research in International Business and Finance, Elsevier, vol. 79(C).
    5. Kapar, Burcu & Buigut, Steven & Billah, Syed Mabruk, 2025. "The short-term reaction of financial markets to the U.S. trade tariff announcement," Finance Research Letters, Elsevier, vol. 86(PB).
    6. Kaczmarek, Tomasz & Demir, Ender & Rouatbi, Wael & Zaremba, Adam, 2025. "Tariffs announcement as a global stress test: Early stock market reactions to U.S. protectionism," Finance Research Letters, Elsevier, vol. 85(PD).

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