US markets tumble as Trump confirms tariffs on Canada, Mexico

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US stocks sharply declined on Monday as President Trump announced a 25% tariff on imports from Canada and Mexico, effective Tuesday. The decision heightened trade war fears and considerably impacted investor sentiment, affecting major stock indices and causing a significant market downturn.

US stocks plunged on Monday after President Donald Trump announced that a 25% tariff on imports from Canada and Mexico would take effect on Tuesday, dashing hopes for a last-minute deal and reigniting trade war fears. The S&P 500 fell 1.8%, the Dow Jones Industrial Average dropped 649 points (1.5%), and the Nasdaq composite slumped 2.6% as investors reacted to the tariff escalation.

The sudden announcement wiped out much of the stock market’s gains since Trump’s election, cutting the S&P 500’s post-Election Day growth to just over 1% from a peak of more than 6%. Wall Street had expected Trump to use the threat of tariffs as a bargaining chip for further negotiations rather than enforce them. However, the president’s decision to proceed unsettled investors already cautious about economic uncertainty.

“Markets were looking for another 11th-hour deal to further delay tariffs, but aren’t going to get one this time,” said Jamie Cox, managing partner at Harris Financial Group. “The next phase is to endure them. Markets have to price that reality, and those numbers are painted red.”

Speaking at the White House on Monday, Trump made his stance clear: “Tomorrow – tariffs 25% on Canada and 25% on Mexico will start.” He added, “There is no room left for Mexico or Canada.”

The president had initially granted a one-month delay in February after both countries pledged concessions. However, citing ongoing concerns over illegal drug trafficking and migration, Trump decided to resume the tariffs. Last week, Mexico extradited several notorious drug lords, including a cartel leader sought for killing a US undercover agent, in an attempt to avoid the tariffs.

Additionally, Trump signed an order increasing a previously imposed 10% tariff on Chinese imports to 20%, attributing the move to Beijing’s failure to combat the illicit fentanyl trade.

The broader economic impact of Trump’s tariffs was underscored by a report from the Institute for Supply Management (ISM) on Monday, which showed a slowdown in US manufacturing activity. Demand eased, production stabilized, and job cuts continued as businesses grappled with the effects of the trade policy shift.

Timothy Fiore, chair of ISM’s manufacturing survey committee, noted, “Demand eased, production stabilized, and destaffing continued as panelists’ companies experience the first operational shock of the new administration’s tariff policy.”

Technology and retail stocks were hit particularly hard. Nvidia plunged 8.8%, Tesla fell 2.8%, and Kroger slid 3% following the resignation of its CEO. Even cryptocurrency-linked stocks declined, with MicroStrategy dropping 1.8% and Coinbase falling 4.6% despite Trump’s weekend announcement of a strategic crypto reserve.

While discussing tariffs, Trump also criticised Ukrainian President Volodymyr Zelenskyy for his response to US aid. “Well, I just think he should be more appreciative because this country has stuck with them through thick and thin,” Trump said. “We have given them much more than Europe, and Europe should have given more than us.”

When asked about a minerals deal between the US and Ukraine, Trump dismissed its revival, saying, “No, I don’t think so. It is a great deal for us because Biden very foolishly, stupidly gave 350 billion dollars to a country to fight. We get nothing.”

On the possibility of terminating military assistance to Ukraine, he said, “I haven’t even talked about that right now. I mean, right now, we’ll see what happens. A lot of things are happening right now as we speak.”

China saw an increase in manufacturing orders as buyers sought to secure goods before the US tariffs take effect. Meanwhile, European markets performed better, with Germany’s DAX rising 2.6% and France’s CAC 40 gaining 1.1% following an inflation report that raised expectations of a European Central Bank rate cut.

In the US, investors will closely monitor upcoming economic data and Federal Reserve signals. Treasury yields declined, reflecting concerns about a slowing economy, and market expectations currently anticipate at least two interest rate cuts by year-end.

With inflation worries persisting, the Fed’s ability to intervene may be limited, leaving markets uncertain about how economic conditions will evolve amid escalating trade tensions.

(With inputs from agencies)

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