Trump’s announced tariffs on Canada, Mexico, and China have sparked market turmoil.
Stocks and crypto tumbled on Monday, while the US dollar and oil climbed.
Many of the moves are driven by the expectation that Trump’s tariffs would rekindle inflation.
Markets were rattled as the week kicked off, with traders fleeing risk assets and bracing for the impact of heavy tariffs on America’s top trading partners.
The tariffs, which President Donald Trump imposed over the weekend and are set to officially begin Tuesday, would levy a 25% charge on imports from Canada, while China would be hit with a 10% tariff. Meanwhile, a 25% tariff on Mexico that was also supposed to go into effect on Tuesday was delayed a month after Trump and Mexico’s president, Claudia Sheinbaum, struck a deal on border policy.
Investors are reacting to the expectation that Trump’s tariffs could be inflationary. If that scenario plays out, it could prompt the Federal Reserve to be more conservative with rate cuts and perhaps even hike rates. That, in turn, would raise the cost of capital for corporations and erode future earnings.
Below are five areas where the impact of a new trade war is being felt.
The moves: The S&P 500 fell as much as 1.8%, while the tech-heavy Nasdaq 100 fell 2.2% at intraday lows.
Globally, indexes closed lower in Japan, South Korea, and Australia. In the UK and Europe, the FTSE 100 and the Stoxx 600 indexes also tumbled.
Some of the hardest-hit stocks on Monday included Nvidia, which fell as much as 6%, while Broadcom, Apple, and Alphabet slid sharply.
Why: Investors are concerned that the tariffs could be inflationary and weigh on corporate profits if interest rates move in a more hawkish direction. That would be especially true if retaliation by other countries led to a full-blown trade war.
Goldman Sachs wrote on Sunday night that the tariffs could drag the benchmark index down by about 5% in the coming months as a new trade war batters earnings.
The moves: Tesla and Ford fell as much as 7% and 5%, respectively. Honda Motor closed 7% lower while General Motors stock declined more than 6% at intraday lows.
Why: Many US automakers have factories in both Canada and Mexico that would be subject to the tariffs. Many car parts cross borders multiple times before a car is ready to roll off the production line.
Analysts at Wolfe Research said tariffs could increase car prices by about $3,000. That would likely dampen sales and weigh on profitability.
The moves: Bitcoin fell as much as 6% on Monday before stabilizing. Ethereum saw even deeper losses, losing 27% at intraday lows before paring declines to 7%. Meanwhile, dogecoin plummeted as much as 25% before retracing losses.
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