- 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 the Trump’s tariffs will 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 will fully go into effect by Tuesday, levy a 25% charge on imports on Canada, while China will be hit with a 10% tariff. Meanwhile, a 25% tariff on Mexico was delayed a month before it was supposed to go into effect on Tuesday.
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. That, in turn, would raise the cost of capital for corporations and erode future earnings.
Detailed below are five areas where the impact of a new trade war is being felt.
Stocks
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 tariff moves could be inflationary and weigh on corporate profits if interest-rate moves move in a hawkish direction. That would be especially true if retaliation from any affected nations leads 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.
Especially auto stocks
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, should they ultimately go into place. Many car parts cross borders multiple times before a car is ready to roll off the production line.
According to analysts at Wolfe Research, the tariffs are expected to increase car prices by about $3,000. That would further strain affordability and dampen sales, weighing on profitability.
Crypto
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.
Why: Bitcoin is highly correlated with the Nasdaq and moves lower in the tech-heavy index are often amplified in crypto. In terms of Ethereum specifically, it was seen as being hit hardest because leveraged long positions were caught off-guard, forcing liquidation.
US dollar
The moves: The US dollar index jumped by about 1% on Monday, while the Canadian dollar and Mexican Peso declined by about 1% versus the greenback.
Why: The dollar’s jump stems from the view that if inflation rebounds due to the new tariffs, the Federal Reserve will have little chance to cut interest rates further, putting upside pressure on the dollar.
In general, the dollar rises alongside expectations for higher interest rates because higher rates lead to increased demand for higher-yielding dollar-denominated assets like Treasurys. Higher rates also lead to less borrowing, reducing the supply of dollars overall.
Oil
The moves: US crude oil spiked as much as 4% on Monday before paring gains to about 0.6%. Other derivatives of oil also rose, with futures tied to gasoline jumping 5%, heating oil up 4%, and natural gas rising 9%.
Why: The US is reliant on both Canada and Mexico for crude-oil imports, and the tariffs are seen raising the price of those. The US brings in roughly 4 million barrels of crude from Canada each day, and about 500,000 barrels from Mexico.
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