Wall Street Braces for Impact as Trump Tariffs Shake Global Markets

Image Credit: Reuters

Global markets braced for a volatile session on Monday following U.S. President Donald Trump's decision to impose sweeping tariffs on Canada, Mexico, and China, which have sparked fears of slowing economic growth and rising inflation. 

U.S. stock futures dropped sharply, with Nasdaq futures falling 2.35% and S&P 500 futures losing 1.8%. In response, Canadian Prime Minister Justin Trudeau announced retaliatory tariffs on U.S. goods, set to take effect Tuesday, while Mexican President Claudia Sheinbaum pledged to outline Mexico's response on Monday. 

Trump’s tariffs—25% on Mexican and Canadian imports and 10% on Chinese goods—begin on Tuesday, with China vowing countermeasures. The uncertainty surrounding the tariffs' duration and impact has unsettled markets already rattled by China’s AI developments last week, which hurt tech stocks.

Oil prices surged by over $2, and gasoline futures jumped more than 3% amid the news. Analysts are concerned that the tariffs will raise inflation and damage U.S. growth, potentially leading to a delay in expected interest rate cuts. This could also further weaken currencies like the Canadian dollar and Chinese yuan.

"The market has largely supported Trump’s policies until now, but that may change," said Mark Malek, CIO at Siebert Financial. 

Canada is responding with 25% tariffs on $155 billion of U.S. goods, including $30 billion set to take effect on Tuesday. China's yuan weakened to a record low, while the Canadian dollar also plummeted to a 20-year low against the U.S. dollar. The Mexican peso dropped more than 2%.

JPMorgan estimates that Mexico's peso could drop nearly 12% if the tariffs are sustained. The euro also slid more than 1%, hitting a two-year low as concerns grow that Europe could face similar tariffs. 

With stock markets already near record highs, analysts predict a possible selloff, with the S&P 500 potentially moving 3% to 5% in either direction. Barclays estimates the tariffs could reduce S&P 500 earnings by 2.8%, factoring in retaliatory measures.

Goldman Sachs warned that the tariffs could push core inflation up by 0.7% and reduce GDP by 0.4%, though they expect the tariffs to be temporary. However, the potential for rising consumer prices has investors worried about inflation, which could halt the Federal Reserve’s rate-cutting cycle. 

European Central Bank policymaker Klaas Knot also predicted higher inflation and U.S. interest rates, which could further weaken the euro. Capital Economics’ Paul Ashworth added that these conditions would likely delay any interest rate cuts from the Fed for the next 12 to 18 months.

Paraphrasing text from "Reuters" all rights reserved by the original author.