Stock Market Plunges After Trump Tariffs Take Effect
President Trump officially announced 25% tariffs on Mexico and Canada would take into effect on Tuesday, to which many people are concerned of rising prices on consumer goods.
But the price of produce, electronics, and other goods aren't the only thing that is changing. Since Trump announced the tariff increase, the stock market has taken a hit.
Just how much of a hit?
Dow and S&P 500 Plunge
The U.S. stock market has been volatile since Tuesday morning when the tariffs officially took into effect. The Dow Jones fell by 570 points, which is a decrease of 1.32%.
The S&P 500 decreased by 1%, and the Nasdaq dropped by 0.4%. The VIX, which measures market fear, reached its highest level this year. The S&P 500 lost all the gains it had made since Trump's reelection in November.
With this drop, many are concerned that Trump's tariffs could lead to a wider trade war.
The impact wasn't limited to the U.S. as global markets were also affected.
In Europe, the STOXX Europe 600 index fell by 2.14%, and Germany's DAX index tumbled by 3.54%. In Asia, Japan's Nikkei 225 index fell by 1.2%, and Hong Kong's benchmark Hang Seng index slid by 0.28%. However, China's Shanghai Composite index rose slightly by 0.22%.
Currency markets also reacted to the news. The US dollar weakened, the Mexican peso fell against the dollar, and the Canadian dollar decreased after a small initial gain.
Why the Tariffs?
President Trump is demanding a 25% tariff on imports from Mexico and Canada to address issues of illegal immigration and drug trafficking, particularly the flow of fentanyl into the U.S.
Trump claims that these tariffs will force the two neighboring countries to intensify their efforts against fentanyl smuggling and better manage the flow of undocumented migrants. The administration asserts that Mexican gangs illegally supply fentanyl and maintain laboratories in Canada, while the chemicals necessary for producing the drug originate in China.
The president also argues that these tariffs will enhance U.S. manufacturing, trigger economic growth, safeguard jobs, and increase tax income. However, economists warn that these tariffs could lead to income reductions, job losses, and increased consumer prices on a wide range of products, including groceries, clothes, electronics, and more.
The high tariffs aren't just hitting Canada and Mexico. In February, Trump had placed a 10% import tariff on China, and stated on Monday that would be doubling to 20% on Tuesday.
Rocky Weeks for Wall Street
The stock market has been going through a rough couple of weeks. It hit a record high last month because many big U.S. companies reported better profits than expected.
However, things started to go downhill after that. Reports showed that the U.S. economy wasn't doing as well as people thought.
American households are becoming more worried about inflation, especially because of Trump's new tariffs. This concern is affecting how people view the future of the economy.
On Monday, a report on U.S. manufacturing added to these concerns. Manufacturing is still growing, but not as much as experts predicted. New orders for manufactured goods are actually decreasing, which is a sign of potential trouble ahead. Prices are also going up as people debate who will end up paying for the tariffs.
All of this bad news has caused the stock market to fall, erasing the gains it made since Trump's reelection. Investors are worried about how Trump's tariffs and other economic factors might affect businesses and the global economy.
Andrew Wilson, deputy secretary-general of the International Chamber of Commerce stated, "Our deep concern is that this could be the start of a downward spiral that puts us in 1930s trade-war territory."
The Smoot-Hawley Tariff Act was signed by President Herbert Hoover in 1930. It increased tariffs on thousands of imported goods, causing other countries to retaliate, leading to a significant decrease in international trade. While this alone did not cause the Great Depression, it only made conditions worse.