US Stocks Drop on Monday Amidst Tariff Concerns
US stocks declined on Monday in response to President Donald Trump's announcement of tariffs on Mexico, Canada, and China. The major indices pared losses mid-morning after Trump delayed tariffs against Mexico by a month.
The tech-heavy Nasdaq Composite (^IXIC) fell by around 1%, recovering about half of its earlier losses. Meanwhile, the S&P 500 (^GSPC) dropped roughly 0.6%, and the Dow Jones Industrial Average (^DJI) declined by 0.2%. Consumer discretionary (XLY) stocks, which include automakers, were among the most heavily impacted early in the day. Tech (XLK) also dragged on markets as shares of AI chip giant Nvidia (NVDA) and iPhone maker Apple (AAPL) declined.
The tariffs, originally set to take effect on Tuesday, include 25% duties on Canada and Mexico, and 10% on China. Energy imports from Canada will carry a lower 10% duty. However, following a Monday morning call with Mexican President Claudia Sheinbaum, Trump postponed the implementation of tariffs on its imports. He stated that Sheinbaum agreed to send Mexican soldiers to the border to deter the flow of fentanyl and illegal immigrants into the US.
"We further agreed to immediately pause the anticipated tariffs for a one-month period, during which we will have negotiations headed by Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick, and high-level Representatives of Mexico," Trump announced.
The US dollar index (DX-Y.NYB, DX=F) dipped after earlier surging to trade near its highest levels in two years. In the oil market, West Texas Intermediate futures (CL=F) were relatively flat after a jump of well over 2%.
Trump's tariff announcement initially sparked retaliatory statements, with Canadian Prime Minister Justin Trudeau announcing that his country would impose retaliatory tariffs on around $107 billion worth of American-made products. Trump stated that he spoke with Trudeau early Monday and planned to do so again in the afternoon.
Wall Street Debates the Staying Power of Tariffs
Economists on Wall Street debated whether Trump's proposed 25% tariff threats on Mexico and Canada would endure or even materialize, as many now anticipate a similar agreement to be reached between the US and Canada.
"The Canada/Mexico tariffs are likely about leverage," said Claudio Irigoyen, lead global economist at Bank of America. "Our view continues to be that temporary tariffs and threats of tariffs on Canada and Mexico will last until [a new US, Canada, and Mexico trade agreement] is renegotiated," he noted, adding that a trade agreement is due for review in 2026.
"News reports suggest that President Trump aims to do the review sooner," Irigoyen continued. "In our view, the tariffs against Canada and Mexico are aimed at increasing the US's leverage in these negotiations."
Market Reaction to Tariffs and Mexico Delay
Shares of companies likely to be impacted by the tariffs declined in premarket trading, including tech giant Nvidia (NVDA) and electric vehicle maker Tesla (TSLA). However, after the announcement of the delayed tariffs against Mexico, major indices pared losses.
The dollar rose to trade near a 2-year high as investors weighed the potential risks of a trade war. Large US automakers Ford (F) and General Motors (GM) declined premarket, mirroring falls in European peer stocks due to the potential impact of tariffs on cross-border trade.
Asia Markets Slide, Europe Stocks Tumble
Asian markets were the first to open after Trump's tariff announcement, experiencing significant declines. The MSCI Asia Pacific Index fell more than 2%, while major indices in Hong Kong, Japan, South Korea, and Australia posted losses. Markets in mainland China remained closed for the Lunar New Year holiday.
European stocks also fell sharply on Monday, with the Stoxx 600 (^STOXX) declining 1.3% as investors reacted to Trump's comments about tariffs on EU imports. Carmakers, more susceptible to tariffs, led the sell-off.
Oil Futures Rise
Oil futures gained on Sunday in anticipation of the tariff impacts. West Texas Intermediate (CL=F) futures rose by over 3%, while Brent crude (BZ=F) increased by around 1%. Trump's announcement of broader tariffs, including against the European Union, raised concerns about potential price shifts in the future.