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

• Analyzes financial market reactions to the 2025 U.S. tariff announcement. • Uses event study to compare trade-surplus and trade-deficit country responses. • Trade-deficit nations showed muted or mixed equity market reactions. • Trade-surplus nations saw positive market responses, showing trade shifts. • Findings highlight the role of policy uncertainty in global financial markets. 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.