Stock markets in Hong Kong, Japan and South Korea fell as US prepares tariffs on Canada, China and Mexico.

Asian stock markets have dived over fears of a global trade war as the United States prepares to impose trade tariffs.

Indices retreated in Hong Kong, Japan and South Korea by about 2 percent as they opened on Monday, after US President Donald Trump confirmed he would impose sweeping tariffs on Canada, China, and Mexico.

The mainland China market was shut for Lunar New Year holidays, but its currency, the yuan, dropped 0.4 percent to the dollar.

The US tariffs, set to go into effect on Tuesday, impose a 25 percent tax on all imports from Canada – except for energy – and Mexico, as well as a 10 percent levy on goods from China.

Full effect not ‘fully grasped’

Though widely expected, the dramatic trade move hailed by Trump threatens some of the world’s biggest manufacturers, who will likely have to contend with weakening demand from the world’s top economy and a downturn in global growth.

Automakers, many of whom have operations in Mexico from which they export to the US, were among the hardest hit. Toyota, the world’s top automaker, and smaller rival Nissan fell more than 5 percent. South Korea’s Kia Motors, which has a factory in Mexico, tumbled more than 7 percent.

Shares of Taiwanese tech companies with factories in Mexico also fell, with Foxconn down 8 percent, Quanta down about 10 percent and Inventec down 8 percent.

“I don’t believe market participants have fully grasped the extent of the potential fallout yet, especially as responses from affected countries unfold,” said Tareck Horchani, head of prime brokerage dealing at Maybank Securities in Singapore.

US markets are unlikely to be spared the pain. US stock futures fell more than 2 percent before the market opened Monday morning. And analysts warned of likely domestic price hikes on goods across the board.

Canada, one of the US’s top trading partners, announced its own tariffs on the US, with 25 percent taxes on up to $155bn in imports. Mexico also announced it would implement retaliatory tariffs.

Trump, who defends tariffs as protecting local jobs and manufacturing, acknowledged on Sunday that the US may feel a “little pain” in the “short term”. However, in a post on social media, he said it would “all be worth the price”.

He also doubled down on his pledge to impose tariffs on the European Union, which he blames for not importing enough US products, telling reporters the tariffs are coming “pretty soon”.

A spokesperson for the European Commission, alongside several officials from various member states, warned over the weekend that the bloc will retaliate in the event that the US introduces tariffs.