(NewsNation) — President Donald Trump’s tariffs on America’s three biggest trading partners sent stocks tumbling Tuesday.
The Dow Jones Industrial Average plunged 670 points following Monday’s drop of nearly 650 points. The S&P 500 slid 1.2% and has now erased all gains since Election Day in November.
Wall Street was already coming off a rough few weeks, but Trump’s tariffs on Mexican, Canadian and Chinese imports, which took effect Tuesday, reignited inflation fears and sent stocks lower.
Imports from Canada and Mexico are now to be taxed at 25%, though Trump limited the levy to 10% on Canadian energy. Trump also doubled the tariff on all Chinese imports to 20%.
Those countries vowed swift retaliation, and economists warn the escalating trade war will likely lead to higher prices for American consumers.
Meanwhile, cryptocurrency prices have also pulled back from their recent surge after Trump’s announcement that he wants the U.S. government to hold a variety of digital assets in a strategic reserve fund.
What are tariffs, and why did Trump enact them?
Why is the stock market down?
U.S. stocks plunged Tuesday as Trump’s tariffs on America’s top trading partners took effect. It’s a move economists warn will hurt businesses and lead to higher prices for consumers.
That’s because tariffs raise the cost of doing business. They are taxes on goods imported from other countries that get paid by importers (U.S. companies) to the Treasury.
“The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions,” David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, wrote Monday.
He added, “Other than that, they’re fine.”
Trump trade war intensifies as tariffs go into place
Major retailers like Target and Best Buy are already warning shoppers that Trump’s tariffs may lead to higher prices.
For some items, like produce coming from Mexico, consumers will likely see price increases over “the next couple of days,” Target CEO Brian Cornell told CNBC Tuesday.
The other problem with tariffs is that they tend to trigger retaliation from targeted countries, which is exactly what happened.
China responded with tariffs of up to 15% on a wide array of U.S. farm exports. Canadian Prime Minister Justin Trudeau said his country would also put tariffs on more than $100 billion of U.S. goods. Mexican President Claudia Sheinbaum said her country would respond with tariffs that will be announced this weekend.
Canadian provinces have also joined the fight.
The leader of Ontario, Canada’s most populous province, said he would issue a 25% export tax on electricity sold to the U.S. In 2023, Ontario powered 1.5 million homes in Michigan, New York and Minnesota, according to The Associated Press.
Newfoundland and Labrador Premier Andrew Furey has said he will remove all U.S. alcohol products from provincial store shelves, according to the Canadian Broadcasting Corporation.
Tuesday’s tariffs marked a major escalation in a trade war that some doubted would actually happen, previously chalking the president’s threats up to tough negotiating rather than concrete policy.
“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 Monday research note reviewed by The New York Times.
American consumers are nervous about what the tariffs could mean for their wallets. In February, consumer confidence fell sharply, recording its largest monthly decline since August 2021.
Where will stocks go from here?
It’s impossible to know for certain where the stock market and broader economy will go from here, but some worry Trump’s tariffs could be a severe blow.
“Our deep concern is that this could be the start of a downward spiral that puts us in 1930s trade-war territory,” Andrew Wilson, deputy secretary-general of the International Chamber of Commerce, told The Wall Street Journal on Tuesday.
Wilson said the likelihood of a major downturn for the global economy is high, essentially “a coin-flip,” and depends on whether Trump is willing to rethink his approach to tariffs.
US consumer confidence drops by most since August 2021
Others pointed out how extreme the new tariffs are compared to the actions Trump took in his first term.
“His first term tariffs affected $380 billion of imports, mainly from China, over the course of 2018 and 2019. His second term tariffs now affect $1.4 trillion of imports, mainly from allies, over the course of a month,” Erica York, vice president of federal tax policy at the Tax Foundation, wrote on X.
In other words, consumers are likely to feel more pain this time around.
Meanwhile, Trump administration officials are projecting optimism, dismissing fears of a tariff-driven Wall Street sell-off.
“Over the medium term, which is what we’re focused on, it’s a focus on Main Street. Wall Street’s done great, Wall Street can continue to do fine, but we have a focus on small business and consumers,” Treasury Secretary Scott Bessent told Fox News on Tuesday.
When asked whether prices could go up, Bessent said there will be “a transition period,” but in terms of China, he said he’s “highly confident” that Chinese manufacturers will “eat the tariffs” and prices won’t increase for American consumers.
Commerce Secretary Howard Lutnick told CNBC on Tuesday that Trump’s tariffs are part of a “drug war,” not a “trade war.”
“If they can stop the flow of fentanyl, and they can prove to the president they can stop the flow of fentanyl, then of course the president can remove these tariffs,” he said.
What’s going on with crypto?
Cryptocurrency prices briefly shot up after Trump’s surprise strategic reserve announcement Sunday but have since moderated.
The president said his administration was moving forward with a U.S. crypto strategic reserve that would include popular cryptocurrencies like bitcoin and ether but also three lesser-known cryptocurrencies: XRP, solana and cardano.
“I will make sure the U.S. is the Crypto Capital of the World,” the president wrote in a social media post Sunday morning.
Trump sends crypto prices on a short-lived surge after announcement of strategic government reserve
Bitcoin, the largest and oldest cryptocurrency, saw its price rise from around $85,000 early Sunday to roughly $95,000 by the evening. As of Tuesday morning, the price of bitcoin had fallen back to where it was before Trump’s announcement but started climbing toward $90,000 again by the afternoon.
Ether — the native cryptocurrency token used by the Ethereum network and the second biggest cryptocurrency by market cap — had a similar rise and fall over the past couple of days.
The recent volatility isn’t uncommon for crypto, an asset class known for major price swings. But unlike stocks, which trended lower on Tuesday, bitcoin and ether ticked up from the day prior.
“Bitcoin and Ethereum holding steady while stocks slide suggests that crypto traders already priced in macro risks before traditional markets fully reacted,” Ben Kurland, CEO at crypto research platform DYOR.com, told CNBC. “The tariff war, inflation concerns and broader economic uncertainty have been weighing on equities, but crypto had its major sell-off earlier, which likely flushed out excess leverage.”
The White House is set to host a first-of-its-kind cryptocurrency summit Friday. That’s when more details on the crypto strategic reserve are expected to be revealed.
