US stock markets fall amid trade war fears

U.S. stocks fell sharply amid concerns that President Trump's tariffs on Canada, Mexico, and China would lead to a wider trade war and damage the economy. The S&P 500, which tracks the largest 500 U.S. companies, fell for the second consecutive day, closing at its lowest level since Trump won the presidential election. This series of events has triggered market anxieties regarding the global economic outlook, requiring careful monitoring.

President Trump has followed through on his threat to impose 25% tariffs on imported goods from Canada and Mexico, and 20% on China. This move quickly triggered retaliation, including from Canada. Canadian Prime Minister Justin Trudeau warned Trump that his decision against America’s neighbors and close trading partners was “a very silly thing to do.”

Trump fired back on social media: “Please explain to Prime Minister Trudeau of Canada, that our reciprocal tariffs will be INSTANTLY increased by the SAME AMOUNT when they charge the U.S.” U.S. Commerce Secretary Howard Lutnick indicated that Trump might be prepared to reach an agreement with Canada and Mexico. “I think he’ll make some kind of deal with them,” he told Fox News, hinting at potential resolutions.

Lutnick added that it wouldn’t be a “pause,” but rather, “I think he’ll figure out a way, ‘you do more, I’ll agree with you in some way,’ and we may announce that tomorrow.” It remains unclear whether Trump will announce a new agreement, but markets will be closely watching the president’s address to Congress on Tuesday. Approximately $2 billion worth of goods cross the borders of the U.S., Canada, and Mexico each day, highlighting the deep integration of their economies.

U.S. and global stock markets have declined since Trump announced on Monday that the tariffs would proceed. Canada and China have already announced retaliatory import taxes on U.S. goods. Mexican President Claudia Sheinbaum stated that Mexico would announce a response on Sunday, including “tariffs and non-tariff measures,” escalating trade tensions further.

The Dow Jones Industrial Average fell 1.5%, and the Nasdaq (where many tech company stocks are listed) fell 0.35%. The S&P 500 closed down 1.2%. U.S. retailers and auto manufacturers were hit the hardest, with shares of electronics chain Best Buy closing down more than 13%. The company warned earlier on Tuesday that tariffs would lead to price increases for its shoppers.

Best Buy CFO Matt Bilunas said, “Obviously, the biggest unknown is how the consumer is going to react to price increases, because there could be a lot of price increases coming this year.” Trump has stated that he imposed tariffs on Canada, Mexico, and China in response to what he claims are unacceptable flows of illegal drugs and illegal immigration into the U.S.

Trudeau called this justification “complete and utter nonsense” and warned that Canada’s retaliatory measures would be damaging. He said Canada would first target $30 billion worth of products and, within 21 days, would target the remaining $125 billion. Any new tariffs imposed by Canada will remain in effect “until the American trade actions are rescinded.” “Canadians are reasonable, we’re polite, but we also will not back down from a fight, especially when our country and everyone’s well-being is threatened,” he said.

Trudeau said directly to Trump: “Donald, you’re a very smart guy. But this is a really dumb thing to do.” China also quickly announced its own countermeasures, including tariffs of 10-15% on some U.S. agricultural products, including wheat, corn, beef, and soybeans. China is the largest buyer of these U.S. commodities, making the impact significant.

Chinese Foreign Ministry Spokesperson Lin Jian stated, “If the U.S.... insists on waging a tariff war, a trade war, or any other form of war, China will see it through to the end.” Trump said he would respond to retaliatory measures with a plan (originally scheduled to be released in April) targeting “reciprocal” tariffs. These tariffs would be tailored to each country and take into account areas such as trade balance and other taxes (such as value-added tax) with the U.S.

Trump has also threatened to impose a 25% tariff on the EU, recently claiming that the EU was “formed to take advantage of the U.S.” Europe has pledged to retaliate but has not yet implemented any tariffs. Trump hopes that imposing tariffs on goods purchased by the U.S. will force foreign companies to invest in the U.S., increasing tax revenue and boosting economic growth.

He argues that tariffs (which are taxes paid by businesses on imported products) will boost U.S. manufacturing and protect jobs, as foreign companies will shift to producing in the U.S. However, tariffs also tend to trigger retaliation from targeted countries, disadvantaging domestic businesses seeking to export goods, meaning these measures could ultimately hinder trade.

Analysts warn that tariffs could lead to a recession, drive up prices for American families, and potentially have ripple effects for global consumers, including in the UK. UK Shadow Chancellor Rachel Reeves said that whether or not the UK avoids tariffs, there will be ripple effects. “I don’t think this is good for anybody,” she said. “Absolutely, even if tariffs are not applied to the UK, we will be affected by a slowdown in global trade, slower economic growth, and higher inflation than would otherwise have been the case.”

If inflation rises, it could impact the pace of interest rate cuts. Companies may choose to absorb the cost of additional taxes. Chipotle said the restaurant chain will take this approach for now. “Our intention today is to hold prices where they are, because we don’t know if the tariffs are temporary, permanent, or how they will impact our business going forward,” said Laurie Schalow, Chipotle’s head of corporate affairs.

But like Best Buy, other U.S. retailers have warned of rising prices. Target boss Brian Cornell said shoppers could see price increases on foods such as avocados, bananas, and strawberries in the coming days. Mexican avocados account for nearly 90% of the U.S. market each year. Walmart said it would do its best to keep prices “as low as possible.”

“At the same time, we encourage all parties to work together to find common ground to protect consumers from higher prices and to continue to grow our economy,” the company said. Automakers are also bracing for impact. Ford CEO Jim Farley warned last month that the company “could stomach two weeks of tariffs.” “We could see billions of dollars of industry pressure, job losses, lots of impact on communities.”