Stocks have rallied since the election, but a blasé Wall Street finally got its first dose of Trump and his trade policies as the President’s long-awaited and feared tariffs took effect to start the week — with a few surprises.
A 25% tariff on Canadian and Mexican imports, plus a 10% additional tariff on Chinese goods set to take effect on Tuesday, had a last-minute change as Mexico, Canada, and the US mutually agreed to punt their respective tariffs as part of a last-minute agreement, defusing some of the market’s angst.
The day of reckoning: With the blow of the tariffs lessened by the surprise switch-up, the S&P 500 and Nasdaq-100 were able to claw back from a 1%+ intraday decline. However, Wall Street remained weary — even in spite of good news. For the last five weeks, hedge funds have sold US equities amid worries about the tariffs and their impact at home and abroad — leaving retail investors as some of the foremost “dip-buyers.” Whether it will pay off could have a lot to do with whether the tariffs last.
- Last week, JPMorgan analysts warned that the tariffs were “tilting into a business-unfriendly stance,” which could shift business sentiment and jeopardize the economy.
- Meanwhile, Morgan Stanley analysts forecast US inflation to rise in the coming months if tariffs aren’t a temporary blip — and they weren’t alone, as many analysts expect the same.
Game Trade Theory
With Mexico and Canada in the clear for now, auto companies like Stellantis and General Motors, alcohol giant Constellation Brands, and restaurant chain Chipotle were able to stave off the threat of larger stock losses created by the tariffs. But consequences still await.
- For Americans, tariffs on Canadian and Mexican goods could exacerbate the housing crisis, impacting agriculture and domestic auto production — and Chinese tariffs could create headaches for electronics prices and popular discount retailers like Temu.
- However, Trump is estimating that the impact on China and Canada will force a deal — the Yuan just hit a record low in offshore trading, while the Canadian dollar and Mexican peso extended losses.
Retaliation station: At least until everything is settled, all three of America’s major trade partners are considering options for maximum damage. Both have reportedly considered retaliatory tariffs on American goods — which could go into effect if they don’t come to an agreement with Trump. And in Canada, Trump-flavored conservatives have floated tariffs targeting America’s red states while imposing bans on goods such as American liquor brands, which could potentially harm an already-hampered US spirits business. It might be the start of a long series of blows.
