Investors panicked in response to Gary Cohn’s unexpected – although not entirely surprising – announcement that he’s resigning from his post as Donald Trump’s top economic adviser late in the day yesterday. Although things have calmed down slightly, US index futures still remained deep in the red while the Canadian dollar was also struggling at the time of this writing. The market’s reaction suggests investors are now even more concerned that with one of Trump administration’s strongest free trade advocates gone, that the US trade policy will head further into protectionist territory. Investors are wondering how Cohn’s resignation will impact US trade policies and whether it will ignite a trade war, and what that may mean for monetary policy. Will Donald Trump now enact those hefty tariffs on steel and aluminium imports? How will the Federal Reserve respond? After all, the Fed dislikes market volatility, something which will surely increase further in the event other countries start to retaliate and introduce their own protectionist policies. If the Fed becomes hesitant in tightening monetary policy amid trade war concerns, this could put further downward pressure on the dollar, especially against its European rivals and perceived safe haven currencies such as the Japanese yen and Swiss franc. Meanwhile the Canadian dollar and Mexican peso could fall further out of favour as import of commodities by US companies declines as a result of the tariffs. However, a lot will now depend on who Trump chooses to replace Cohn. If his replacement is someone deemed to be in favour of free trade, much like Cohn, then that should be a market-friendly outcome. However if it is a trade hawk then panic is only likely to increase among market participants. Anything is possible with Donald Trump.