Burgeoning trade war sends Wall Street sharply lower, car makers and restaurants slide
Wall Street is pointing sharply lower Monday following President Donald Trump’s orders to impose steep tariffs on the biggest US trading partners: Mexico, Canada, and China. Futures for the S&P 500 tumbled 1.5 percent while futures for the technology-heavy Nasdaq fell 1.6 percent. Dow Jones Industrial futures were off 1.2 percent.
Trump’s 25 percent tariffs on most imports from Canada and Mexico and 10 percent tariffs on goods from China are to take effect Tuesday. Trump has said the tariffs were imposed on those countries for the production and importation of the opiate fentanyl along with trade surpluses and illegal border crossings by migrants from across the globe. Canada initially ordered retaliatory tariffs of 25 percent on American imports starting Tuesday including beverages, cosmetics, and paper products worth 30 billion Canadian dollars (20 billion). A second list of goods was to be released soon including passenger vehicles, trucks, steel and aluminum products, certain fruits and vegetables, beef, pork, dairy products, aerospace products, and more. Those goods were estimated to be worth 125 billion Canadian dollars (85 billion). Shares of companies spanning many of those industries sank in premarket trading Monday.
Automakers are being hit especially hard early Monday. Volkswagen sources 43 percent of its vehicles through Mexico, General Motors 22 percent, and Ford 15 percent. General Motors fell 6.3 percent while Ford lost 3.9 percent and Tesla tumbled 3.6 percent in premarket trading. Volkswagen slumped 6 percent in European trading. Constellation Brands, the maker of Corona beer and Robert Mondavi wine, skidded 6.7 percent after some Canadian officials said they planned to remove American alcohol brands from government store shelves. Manufacturers also were dinged early Monday. Farm equipment maker Deere & Co. tumbled 4.5 percent while Caterpillar dipped around 2 percent. Mexico has so far said only that it will impose retaliatory tariffs without mentioning any rate or products.
Trump’s promise of tariffs in the lead-up to the election was part of the reason the Federal Reserve dialed back the number of interest rate cuts it expected to impose this year. Originally the central bank had projected four cuts but slashed that number to two at their December meeting citing still-sticky inflation that could worsen under Trump’s trade and immigration policies. After implementing three straight rate cuts to close the year, the Fed last week left its benchmark interest rate unchanged, taking a more cautious view on how policies under Trump might impact inflation and the broader economy. Analysts say the tariffs would measurably add to US inflation, which the Fed has not quite managed to get down to its goal of 2 percent.
Asian markets also were bracing for volatility set off by a possible trade war escalation. Japan’s benchmark Nikkei 225 lost 2.7 percent to finish at 38,520.09. Australia’s S&P/ASX 200 declined 1.8 percent to 8,379.40. South Korea’s Kospi dropped 2.5 percent to 2,453.95. Hong Kong’s Hang Seng dipped less than 0.1 percent to 20,217.26, while trading was closed in Shanghai for a holiday. “The implications for trade restrictions could result in reduced global trade flows, supply chain shifts which could mean higher costs for businesses and higher inflation,” said Yeap Jun Rong, market strategist at IG.
The share price of SoftBank Group Corp. rose 0.5 percent after it announced at an event with OpenAI in Tokyo that they were setting up SB OpenAI Japan, in which each would own a 50 percent share to offer artificial intelligence services to companies. Investors have been jolted by a report from a Chinese upstart, DeepSeek, about developing a cheaper large language model that can complete globally. The disruption raised questions about whether all the investment expected for AI chips is really needed, sending some technology shares tumbling.
Shares of technology companies listed in Hong Kong seemed to hold up despite the threat of Trump’s tariffs, partly because DeepSeek highlights the strength of the nation’s technology sector. European markets also were down significantly Monday after Trump threatened to impose steeper tariffs elsewhere, saying import taxes “will definitely happen” with the European Union and possibly with the UK as well. By midday, France’s CAC 40 had slipped 1.9 percent while Germany’s DAX dropped 2 percent and Britain’s FTSE 100 fell 1.3 percent.
In energy trading, benchmark US crude jumped 1.66 to 74.19 a barrel. Brent crude, the international standard, gained 1.11 to 76.78 a barrel. In currency trading, the US dollar fell to 154.58 Japanese yen from 155.18 yen. The euro cost 1.0279, down from 1.0363. Bitcoin extended its weekend decline, falling under 95,000 Monday. The original cryptocurrency had been hovering around 105,000 for the better part of the past two weeks.
