Markets shaken as U.S. tariffs against Canada, Mexico go into effect

Stocks tumbled in morning trading on Wall Street on Tuesday as a trade war between the U.S. and its key trading partners escalated, but uncertainty around the tariffs’ duration has made the impact on global markets scattered.

The tariffs between the United States, Canada, Mexico and China have helped to extend a recent slump for U.S. stocks that was prompted by signs of weakness in the economy.

The S&P 500 fell one per cent, weighed down by nearly every sector except the relatively safer investments of real estate and utilities.

Canada’s main stock index dropped nearly 500 points in early trading, and the Dow Jones industrial average, one of the biggest indicators of the health of the U.S. economy, shed 572 points, or 1.3 per cent, as of 12:48 p.m. ET. The Nasdaq composite fell 0.3 per cent, meaning that the tech-heavy index is approaching a 10 per cent decline from its most recent closing high, which is what the market considers a correction. 

Markets in Europe fell sharply, while stocks in Asia saw more modest declines.

The drops follow a steep sell-off on Monday. Altogether, the decline has wiped out all of the markets’ gains since U.S. President Donald Trump’s election in November — gains that were built largely on hopes for policies from Trump that would strengthen the U.S. economy. Worries about tariffs raising consumer prices and reigniting inflation have been weighing on both the economy and Wall Street.

Imports from Canada and Mexico are now to be taxed at 25 per cent, with Canadian energy products subject to 10 per cent import duties. The 10 per cent tariff that Trump placed on Chinese imports in February was doubled to 20 per cent.

Retaliations were swift.

Canada has already slapped tariffs on $30 billion worth of American goods, and has promised to introduce tariffs on $125 billion more in three weeks’ time. Prime Minister Justin Trudeau, citing a Wall Street Journal editorial, called Trump’s targeting of Canada a “very dumb” move, adding that more non-tariff measures are coming if Trump doesn’t back down. 

China responded to new U.S. tariffs by announcing it will impose additional tariffs of up to 15 per cent on imports of key U.S. farm products, including chicken, pork, soy and beef, and expanded controls on doing business with key U.S. companies. Mexico is also planning tariffs on goods imported from the U.S.

Dollar rattled

The U.S. dollar index hit its lowest level since Dec. 6, 2024, on Tuesday morning, as concerns about the tariffs’ impact on the broader U.S. economy outweighed expected boosts from the move.

“We’ve seen the dollar weakened, but I think this reflects markets’ assumptions about how the tariffs will have a negative impact, not just on external growth, but how it could potentially have a negative impact on U.S. growth,” Brian Daingerfield, foreign exchange strategist at Natwest Markets in New York, told Reuters.