Trump’s Tariffs Plunge Global Markets Into a Sea of Red

Not just tough talk

President Trump wasn’t bluffing, after all.

Global markets plunged on Tuesday after U.S. tariffs went into effect on roughly $1.5 trillion worth of imports from Canada, Mexico and China, with another, and even broader, wave set to kick in as soon as next week.

China and Canada have already responded, with Beijing targeting the American heartland with sweeping levies on imported food and halting log and soybean shipments from select U.S. companies. Mexico is expected to retaliate, too.

The escalation has global business leaders increasingly worried about what will come next, as economists warn that consumers and companies will soon see higher prices. Warren Buffett offered a reminder of what the global economy is facing. “Tariffs,” the billionaire investor said this week, “are an act of war, to some degree.”

Here’s the latest:

• Stocks in much of Asia and Europe fell on Tuesday, after the S&P 500 yesterday suffered its worst one-day decline this year. U.S. stock futures were down slightly on Tuesday.

• Hit especially hard on Tuesday were the shares of European automakers, including Volkswagen, BMW, and Daimler Truck. Levies could slam the sector, which is highly dependent on a complex cross-border supply chain.

• The CBOE volatility index, Wall Street’s so-called fear gauge popularly known as the VIX, jumped, posting its biggest one-day spike this year, according to Deutsche Bank.

• The sell-off also extended to cryptocurrencies (more on that below), and, in a new twist, the dollar.

If global investors weren’t spooked before, they seem to be now. “The market finally took the Trump administration at its word, and the realization that the tariff talk wasn’t just a negotiating tactic is starting to sink in,” Chris Zaccarelli, an investment strategist for Northlight Asset Management, said in a research note yesterday evening.

How long will the trade battle last? Analysts see reason for cautious optimism — at least on China. “We view Beijing’s responses as still strategic and restrained,” Xiangrong Yu, Citigroup’s chief China economist, said in a research note on Tuesday. He said a trade deal was still “plausible.”

The Shanghai composite index closed slightly higher on Tuesday.

Market watchers warn of deep repercussions should the trade war drag on. Trump seems to be digging in, telling reporters yesterday that there is “no room left for Mexico or for Canada.” A protracted fight could dent global growth and accelerate inflation, all of which could “hamstring the Fed,” Mark Haefele, the chief investment officer at UBS Global Wealth Management, told Bloomberg Television on Tuesday.

Analysts see the U.S. central bank pausing interest rate cuts until inflation drops closer to its 2 percent target. That would raise the chances of a clash with Trump, who has pressured the Fed to lower borrowing costs.

The dollar is worth watching. Investors are now fretting about inflation and U.S. growth, factors that could force the White House into a rethink on tariffs.

That said, investors seem to be flocking to safe-haven bonds, taking the pressure off the Treasury Department for now.

HERE’S WHAT’S HAPPENING

The U.S. suspends all military aid to Ukraine. President Trump immediately halted more than $1 billion in arms and ammunition on its way to Ukraine and said it would resume only after he determined that Volodymyr Zelensky was committed to peace negotiations with Russia. The move, coming days after an explosive Oval Office confrontation, is the latest sharp break between Washington and Kyiv. Ursula von der Leyen, the head of the European Commission, said the European Union could increase defense spending by as much as €800 billion ($840 billion) in part to help defend Ukraine. Separately, Bloomberg reports that Russia has agreed to help broker talks between the White House and Iran on a range of matters, including its nuclear program.

The world’s largest chip maker announces a $100 billion U.S. investment plan. Taiwan Semiconductor Manufacturing Company, which produces processors for Nvidia and Apple, said it planned to expand plants in the United States and hire more workers. The onshoring investment initiative is the latest by a corporate giant — see also Apple and SoftBank — as the Trump administration focuses on bolstering American manufacturing; Washington and Wall Street also fear that supply chains could be interrupted if tensions escalate between China and Taiwan.

Kroger’s C.E.O. resigns suddenly, amid an inquiry into his personal conduct. The grocery chain said it had determined that behavior by Rodney McMullen was “inconsistent” with its business ethics policy, but that it didn’t involve other employees or the company’s financial performance. It’s the latest twist for Kroger after its effort to buy a rival, Albertsons, for nearly $25 billion was blocked by regulators. Speaking of Albertsons, its C.E.O., Vivek Sankaran, was stepping down as part of a planned retirement.

Elon Musk’s Department of Government Efficiency deletes more claims of savings. The organization has erased about $4 billion from what it said it had saved taxpayers, including five of the seven largest items it had taken credit for last week, The Times reports. It’s the latest sign of disorder at the initiative, whose cost-cutting efforts are unpopular among Americans, according to a new poll.

What’s missing from Trump’s crypto reserve plan

The crypto market gives and takes: After President Trump’s plan for a national crypto reserve drew backlash from both Republicans and investors, the prices of digital tokens that would be involved spiked higher — and then tumbled. (Bitcoin was trading at about $83,800 early on Tuesday, down nearly $10,000 from a day ago.)

The plan has spurred a lot of questions about how it would work and the risks that would be involved. Here are some we’re asking:

How would a national reserve work? Trump campaigned on creating a federal Bitcoin stockpile last summer and appointed David Sacks as his crypto czar. Advisers have suggested holding on to any Bitcoin the government has already seized from criminals, recently estimated at about $17 billion.

A bill proposed by Senator Cynthia Lummis, Republican of Wyoming, would direct the government to buy about 200,000 Bitcoin a year over five years, for a value of about $90 billion. (To help pay for that, the bill proposes taking $4.4 billion out of the Fed’s surplus, cutting into the Treasury Department’s coffers.) Of course, the digital token’s prices would probably rise in anticipation of those federal purchases.

One unknown is whether Trump, in the face of divisions among Republican lawmakers on the idea of a reserve, would seek to test legal limits on his authority and create one unilaterally.

Would taxpayer money be involved? That prospect drew the most criticism. The financier Joe Lonsdale, a Trump supporter, said it was “wrong to tax me for crypto bro schemes.” Another investor called the proposal an “unforced error” that would “enrich the insiders and creators of these coins at the expense of the US taxpayer.”

Some crypto executives have floated the idea of creating a specific tax to fund a reserve, such as putting a levy on transactions involving the $27.6 trillion stablecoin market.

How would the government hedge against crypto volatility? Considering the wild swings in digital currencies, the prospect of taxpayer money being used for what’s effectively a speculative investment has drawn real concern. “There’s nothing strategic or sensible about this idea,” Eswar Prasad, an economist at Cornell University, previously told The Times’s David Yaffe-Bellany. “This would certainly be great for current Bitcoin holders and equally certainly be a bad deal for taxpayers.”

It would also mean the U.S. government would be playing the role of capital allocator, a notion Sacks himself criticized in a 2021 post that was resurfaced after Trump’s proposal.

What would be the benefits? In theory, the government could use any profit from its crypto investing to pay down the nation’s $36 trillion in debt.

But skeptics say the most obvious winner is Trump himself, who has rolled out a crypto venture of his own that carries millions of dollars in tokens set to be included in the reserve. Others are the crypto executives, many of whom donated extensively to Trump’s re-election effort. One example is Ripple, whose XRP token is one of the five that Trump said would be included — and which donated $45 million to an industrywide PAC that sought to help elect Trump and other Republicans.

What else don’t we know? A lot. The curious lineup of tokens for the fund suggests Trump’s being advised by a fairly narrow group.

New tests of investor appetite for A.I.

Shares in the Magnificent Seven group of tech giants, which had rocketed up last year amid Wall Street hopes for artificial intelligence, have fallen more than 10 percent in the past two weeks. It doesn’t mean that investors are souring on A.I. bets altogether, however.

New funding rounds — and a potential I.P.O. — suggest that start-ups and their backers believe there’s still plenty of appetite for promising players in the field.

Example 1: Anthropic. The company, whose A.I. models compete with OpenAI’s, said yesterday that it had closed a $3.5 billion fund-raising effort that valued it at $61.5 billion, up sharply from $16 billion a year ago.

The round was led by Lightspeed Venture Partners, and also included Bessemer Venture Partners, Fidelity and General Catalyst. (Existing Anthropic backers include Amazon and Google.)

Example 2: CoreWeave. The company, which provides cloud-based Nvidia processing power to customers including Meta and Microsoft, filed yesterday to go public, in what could be this year’s first major tech I.P.O.

CoreWeave said its revenue shot up to $1.92 billion last year, an increase of more than 700 percent from 2023, as tech companies clamored for compute for A.I. applications. Nearly two-thirds of its sales were to Microsoft, OpenAI’s chief backer. (Worth noting: CoreWeave’s three founders have collectively sold nearly $500 million worth of their holdings in the company.)

Plenty of other A.I. businesses are seeking money, including Elon Musk’s xAI, which is in talks for new financing that could nearly double its valuation set just two months ago. And investors are still in deal mode: Consider that SoftBank, which is betting heavily on A.I., is planning to borrow $16 billion to finance those wagers, according to The Information.

THE SPEED READ

Deals

• Walgreens Boots Alliance is said to be near a deal to sell itself to the private equity firm Sycamore Partners for about $10 billion. (WSJ)

• Mark Walter, the C.E.O. of Guggenheim Partners, and Thomas Tull, the financier and a founder of the film studio Legendary Entertainment, have formed a $40 billion vehicle to invest in artificial intelligence businesses. (FT)

Politics, policy and regulation

• “Commerce Secretary’s Comments Raise Fears of Interference in Federal Data” (NYT)

• Federal agencies are struggling with a $1 spending limit that the Trump administration imposed on most government-issued credit cards. (Wired)

• The Treasury Department will stop enforcing a disclosure requirement for small businesses that was aimed at stopping money laundering, known as the beneficial ownership information rule. (AP via NBC News)

Best of the rest

• SpaceX scrubbed the eighth test flight of its Starship rocket, which is meant to eventually carry people to outer space. (NYT)

• Publishers are turning fewer hardcover books into paperback versions. (WSJ)

• “Seeing Political Red Meat, Texas May Rename the New York Strip Steak” (NYT)

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