5 market moves that explain the wide-reaching nature of Trump’s tariffs
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.
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 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.
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
. 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.
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 closely correlated with the Nasdaq and drops in the tech-heavy index are often amplified in crypto. Ethereum may have been 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 because of the tariffs, the Federal Reserve likely wouldn’t 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 overall supply of dollars.
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 would raise 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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