The Dow Jones Industrial Average and other stock market indexes began February by dropping sharply in the face of President Donald Trump’s new tariffs, which are poised to kick in Tuesday.
Futures tied to the Dow fell by 602 percentage points, or 1.33%, in early-morning trading. S&P 500 futures fell by 93 points, or 1.54%, while Nasdaq 100 Futures sank by more than 371 points, or 1.73%. The CBOE Volatility Index, a popular metric to judge the market’s expectations for volatility over the next 30 days, was up 21%.
Trump, citing the flow of illegal drugs such as fentanyl and undocumented immigrants into the U.S., on Saturday announced new taxes on imports from Canada, Mexico, and China, the country’s top trade partners. That includes 25% tariffs on imports from Mexico and 10% on imports from China. All imports from Canada are set to be taxed at 25%, although energy imports will be taxed at a lower rate of 10%.
Canada responded by issuing 25% tariffs on $107 billion worth of U.S. goods, although just $20.4 billion would be taxed on Tuesday. The remainder of the tariffs would become active in 21 days.
Mexico said it will announce retaliatory tariffs but has not released additional details. Its tariffs will likely target food products, such as cheese, pork, and whiskey, along with manufactured steel and aluminum, Reuters reported last week.
“These announcements have come as a shock to many investors who expected tariffs would only be imposed if trade negotiations failed,” Goldman Sachs (GS-1.03%) analysts said in a note Sunday.
Goldman estimates that Trump’s tariffs would reduce its S&P 500 earnings per share by roughly 1% to 2% for every 5-percentage-point increase in the tariff rate. Without taking into account any additional impacts, the investment bank estimates a 2% to 3% hit to the S&P 500 companies’ earnings per share.
Between January and November 2024, trade with Canada came out to $699 billion and $776 billion with Mexico, according to the U.S. Census Bureau. The U.S. imports $157.2 billion more worth of goods from Mexico than it exports, while its trade deficit with Canada is about $55 billion. China was the U.S.’s third-biggest trade partner last year, with overall trade as of November totaling more than $532 billion and a trade deficit of $270 billion.
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