President Donald Trump's announcement Monday that his administration will impose across-the-board 25% tariffs against Canada and Mexico as well as a 10% tariff increase against China, effective Tuesday at midnight, was met with returning fire from those three countries — and a stock market tumble even as he was still speaking.
Trump was boasting about what he characterized as his administration's strong economic record and his ability to "[set] records," as Fox News captured the Dow Jones Industrial average plummeting in real-time. While the Dow falling by 20 points within a matter of seconds—and 650 points by the end of the day—did not constitute a world record, it did underscore the market's uncertainty over a policy that critics have said would dramatically raise prices on an array of goods.
The Nasdaq Composite also dropped 2.6% while the S&P 500’s broad index saw its worst day since December, falling by 1.8%.
“Whether the stock market can survive this change remains to be seen,” Chris Rupkey, chief economist at FWDBONDS, told CNBC. “One way or another, tariffs will be a shock for the economy.”
Others are more sanguine about the 2025 economic outlook, saying that investors could see a bumper year despite initial hurdles. “For investors, 2025 can still be a positive year for stocks, but it may take all year to realize gains. And they may be modest,” Gina Bolvin, president of Bolvin Wealth Management Group, told CNN. “I’m still a bull."
The targets of Trump's tariffs "are being punished" for allegedly coming in to "steal our money and our jobs and take our factories and businesses" and failing to curb the flow of fentanyl into the country, Trump said at the press conference. “It’s a very powerful weapon that politicians haven’t used because they were either dishonest, stupid or paid off in some other form. Now we are using them.”
All three other countries are also cognizant of the power of tariffs to inflict damage on an economy, and have warned that if Trump imposed them, they would retaliate with tariffs of their own.
Canadian Prime Minister Justin Trudeau announced in a statement Monday that his government would phase in 25% tariffs against "$155 billion of American goods" starting Tuesday and that they would remain in place "until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures."
"Because of the tariffs imposed by the U.S., Americans will pay more for groceries, gas, and cars, and potentially lose thousands of jobs. Tariffs will disrupt an incredibly successful trading relationship," he said.
Canadian officials have stressed that despite Trump's ominous rhetoric over drugs, only 1% of fentanyl intercepted at the border comes from Canada. Meanwhile, Ontario exports electricity to 1.5 million Americans, and its chief executive Doug Ford declared that he would "cut off their energy with a smile on my face."
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Mexico responded with its own set of 25% tariffs on American goods, to go into effect on Sunday, perhaps to give some time for negotiations to continue.
“There is no motive or reason, nor justification that supports this decision that will affect our people and our nations,” said Mexican President Claudia Sheinbaum. She has argued that the fentanyl crisis stems from domestic American demand for the drugs, as well as the illegal sale of U.S. arms to Mexican crime gangs.
Trump had pulled back on tariff threats earlier in February, pending plans by its targets to block fentanyl and immigrants from entering the U.S. Although they've all released detailed lists of policies they have taken and will implement, including a C$1.3 billion plan by Canada to secure its border, those apparently did not satisfy the president. Canadian and Mexican officials said that they held cordial talks with administration officials just last month.
A 10% tariff on Chinese goods was already in place — Trump's decision to increase the tariffs was met in kind.
Beijing announced Tuesday a 15% tariff on chicken, wheat, corn and cotton imports from the U.S., according to a statement from the State Council Tariff Commission, in addition to a 10% tariff on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products. China's Ministry of Commerce added 15 American companies to its export control list, which blocks them from receiving dual-export equipment from Chinese manufacturers.
Despite the escalation, Trump's commerce secretary Howard Lutnick insisted in an interview on CNBC Tuesday that the tariffs were “not a trade war" and was instead part of a "drug war." Nevertheless, many observers say that Americans will be feeling the effects associated with mutually destructive trade wars. Those people include Trump himself, who conceded last month that Americans will feel short-term "pain" over the tariffs and the fallout.
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