Trump tariffs of 25% on imports from Mexico and Canada took effect at midnight, with the exception of a 10% tariff on Canadian energy goods. President Donald Trump also signed an order doubling his recent 10% tariff on all Chinese imports to 20%. China and Canada have already struck back, and Mexico is expected to also.
The S&P 500 dived 1.7% on Monday to a seven-week low, as companies in the line of fire such as Dell Technologies and General Motors faced heavy selling. Apple, which faces iPhone tariffs, is holding steady.
The Trump administration has justified the tariffs based on a national security emergency to stem the flow of drugs and migrants, but tariffs are an integral part of Trump's economic agenda to boost domestic production. The tariffs will raise prices, pinching consumer demand and hurting U.S. exporters as trading partners retaliate. However, the hit to economic growth will be offset to some extent by lower interest rates as financial markets price in a greater likelihood of near-term Fed rate cuts.
Trump Tariffs: Latest Developments
Trump confirmed on Monday afternoon that Mexico and Canada tariffs would take effect as scheduled, dashing Wall Street hopes that the initial tariff rate would be lower than 25% and triggering a late-day sell-off for the S&P 500.
The 20% across-the-board tariff on Chinese imports put into place over the past month comes on top of 25% tariffs applied on more than $300 billion worth of Chinese goods in 2018 and 2019. Unlike during his first term, Trump tariffs now apply broadly to consumer electronics imports from China, including the Apple iPhone.
Canadian Prime Minister Justin Trudeau announced that Canada will retaliate with an initial 25% tariff on about $20 billion worth of imports from the U.S., including bourbon, Florida orange juice and home appliances, all produced in Republican-run states. That will escalate with tariffs on nearly $90 billion worth of goods.
China announced retaliatory tariffs of 10% to 15% on U.S. agricultural goods including, chicken, soybeans and cotton.
Trump Tariffs: Economic Impact
Deutsche Bank economists estimate that the tariffs on Mexico and Canada alone would raise the Fed's primary inflation rate, the core PCE price index, by four-tenths to seven-tenths of a percentage point, while cutting GDP growth by 0.3 to 0.7 percentage point.
Mexico and Canada together accounted for $918.5 billion in U.S. goods imports in 2024, or about 28% of the total. The integration of North American economies under NAFTA and then the renegotiated U.S.-Mexico-Canada Agreement under Trump means that some goods cross the border more than once, before and after finished assembly.
Commerce Department data shows that the U.S. imported $439 billion worth of goods from China last year.
Tax Policy Center estimates of the tariffs on Mexico and Canada and a 10% increase on China show an average $1,030 hit per household.
However, easier monetary policy in reaction to the tariffs could soften the impact. As of Tuesday morning, markets now see 40% odds of a rate cut by the May 7 Fed meeting, up from 25% a week ago. Markets now see 66% odds that the Fed will cut its key rate by 75 basis points this year.
GM, Apple Dell Feel Impact
Bernstein analysts estimated that the 25% tariffs on Canada, Mexico and China could add $2,700 per vehicle, creating a $43 billion headwind for the industry. Of the Big Three, Bernstein said GM would feel the biggest hit, amounting to a 64% decrease in automotive free cash flow.
S&P Global estimates that 90% of Apple iPhones are manufactured in China, as well as a high percentage of the company's laptops. Dell and HP have diversified manufacturing away from China but still have a significant presence, S&P Global analysts says, while "a sizable portion of Dell servers are manufactured in Mexico."
Cisco Systems has expanded its supply chain exposure to Mexico to just over half of revenue, S&P Global estimates.
Bank of America analysts wrote last month that Apple would likely face "at least a 10% tariff," which would require a 9% price increase to overcome. That assumed that production in India would also face at least a 10% tariff, given Trump's plan for reciprocal tariffs. That calculation doesn't take into account the latest doubling of across-the-board tariffs on Chinese imports to 20%. Apple iPhones avoided tariffs in Trump's first term but are in the line of fire this time around.
Trump Tariffs: The Upside
Tariffs will bring an up-front hit to demand and to exports, while the payoff of a domestic manufacturing expansion will take time to come to fruition. However, announcement of plans to expand in the U.S. have come quickly.
On Monday, Taiwan Semiconductor said it will plow an additional $100 billion into its U.S. manufacturing build out.
Apple has said it is stepping up investments in the U.S. to $500 billion, though it announced a $430 billion investment over five years in 2021.
Honda said it will build its next hybrid Civic in the U.S. in response to tariffs, following Nissan's recent announcement that it may have to move production of cars for the U.S. market out of Mexico.
Eli Lilly said it will invest $27 billion in new U.S. plants.
Trump Tariffs: What's Next?
Tariffs of 25% on all steel and aluminum imports, roughly $50 billion worth, will take effect March 12.
Trump signed an executive order to impose a reciprocal level of tariffs that other countries impose on the U.S. However, he also said the reciprocal rate should take into account nontariff trade barriers, such as government subsidies, value-added taxes and currency valuations. Tariff rates could be set by early April.
Trump has said he plans to impose tariffs of 25% on imports of autos, semiconductors and pharmaceuticals as soon as April 2.
Agricultural imports could also face tariffs in early April, Trump posted on Monday.
S&P 500
S&P 500 futures fell 0.6% in early Tuesday stock market action. That follows Monday's 1.7% S&P 500 sell-off, which left the index 4.8% below its Feb. 19 closing high.
Through Monday, the S&P 500 remained 1.2% above its Election Day close.
The Nasdaq composite closed below its Election Day low on Monday, closing below its 200-day line for the first time since October 2023.
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