President Trump’s decision to impose sweeping tariffs on some of America’s largest trading partners sent shock waves through markets across the globe on Monday.
The day began with stocks dropping sharply on Wall Street, tracking a global slump that came overnight as investors dumped shares of companies that would be hardest hit by tariffs on imports from Canada, Mexico and China.
But the chaotic on-and-off-again rollout of the Trump administration’s plans, with the announcement late Monday morning that tariffs on Mexico would be delayed for a month, whipsawed markets, and traders scrambled to adjust to developments as they unfolded. Tariffs on Canada and China are still set to take effect on Tuesday.
As trading shook out, the dollar held on to broad gains, despite the peso and Canadian dollar clawing back losses. Oil prices, which had risen over 3 percent earlier on Monday, settled back close to where they started the day. Major stock indexes in the United States also recovered some losses.
The S&P 500 was down 0.8 percent, while the technology-heavy Nasdaq fell 1.2 percent. Markets in Asia and Europe tumbled earlier.
When Mr. Trump was elected, many analysts and investors had brushed off his more aggressive tariff talk as bluster intended to prompt negotiation from his global counterparts. But over the weekend, the new administration followed through on the president’s promise to impose tariffs of 25 percent on imports from Canada and Mexico, the United States’ closest trading partners. Canadian energy products and goods from China will be levied at 10 percent.
The drop in the S&P 500 “seems broadly justified as tariff fears rise,” said Yung-Yu Ma, the chief investment strategist for BMO Wealth Management. “The uncertainty at this stage is tremendous — not only of how these eventual negotiations will play out, but worries about how this is only the tip of the iceberg and more tariffs are on the horizon.”
Asian and European stock markets also slid on Monday. Japan’s Nikkei 225 index and South Korea’s Kospi each fell more than 2.5 percent. Markets in mainland China were closed on Monday for the Lunar New Year holiday. The Euro Stoxx 50, made up of Europe’s largest companies, dropped 1.6 percent.
Auto manufacturers, which have poured billions into supply chains in Canada and Mexico that could be hit by new taxes, were hit hard. Shares of Tesla and General Motors were down more than 4 percent on Monday morning, and Ford Motor was down a little more than 3 percent. Japan’s Toyota Motor and Nissan Motor fell about 5 percent in trading, while Honda Motor slumped nearly 7 percent. Shares in Stellantis, Volkswagen and the truck maker Daimler fell more than 6 percent and BMW about 4 percent.
Shares of the Silicon Valley chip company Nvidia, which was already reeling from a sell-off last week linked to developments in the Chinese artificial intelligence company DeepSeek, tumbled more than 5 percent in early morning trading, dragging down the tech sector. Other major U.S. tech companies fell, too, with Apple down more than 2 percent.
Wall Street “clearly is worrying about what is next for China tariffs,” and how that could affect chipmakers and A.I beneficiaries, analysts at Wedbush Securities wrote in a research note on Monday.
The semiconductor giant Taiwan Semiconductor Manufacturing Company fell more than 5 percent in trading on Monday. Mr. Trump had said on Saturday that he expected tariffs would be placed on chips as well as oil and gas later this month. Shares of the British drinks maker Diageo, which has a substantial business importing Mexican tequila and Canadian whiskey, dropped more than 3 percent.
The prospect of retaliation setting off a full-scale tariff war has heightened fears among investors and economists that the inflationary pressure that policymakers have grappled with in the aftermath of the pandemic could return.
The Federal Reserve held interest rates steady at its meeting last week, with indications emerging that the central bank is wary of the inflationary impact stemming from some of the White House’s policies. On Monday, investor expectations of when the Fed will next cut interest rates moved firmly into the second half of the year.
“The near-term consensus view is that tariffs will be inflationary,” said John Brady, an interest rate strategist at RJ O’Brien.
Cryptocurrency markets slumped in a broad-based move away from so-called risky assets. Bitcoin dropped 4 percent, while shares of the crypto trading platform Coinbase fell more than 3 percent.
So far, Mr. Trump has not imposed direct tariffs on Europe, but he said over the weekend that it would “definitely happen.”
The initial reaction from China, which as a big exporter could be damaged more than the United States in a global trade war, was cautious: The Ministry of Commerce said it would challenge the tariffs at the World Trade Organization.
“Rising trade policy uncertainty will heighten financial market volatility and strain the private sector, despite the administration’s pro-business rhetoric,” said Gregory Daco, chief economist for the consulting firm EY-Parthenon.
For traders, the tariffs come as a “severe shock,” Jim Reid, a strategist at Deutsche Bank, wrote in a note, after the market had “refused” to take the threat of tariffs “seriously.”
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