Stock markets fell sharply on Tuesday as President Donald Trump’s imposition of broad tariffs against Canada, Mexico, and China unsettled investors, raising concerns over the stability of the global economy.
The S&P 500 declined by more than 1 percent, extending Monday’s 1.8 percent drop, which marked its steepest single-day decline this year. The Nasdaq Composite also fell by approximately 1 percent, briefly entering correction territory, defined as a 10 percent drop from its recent peak.
The recent sell-off has erased much of the stock market gains recorded since Trump’s election in November, as optimism over deregulation and business-friendly policies has shifted toward uncertainty regarding the economic impact of the tariffs.
In response to market volatility, investors sought the relative safety of government bonds, driving the yield on the 10-year Treasury note to its lowest level since October.
The uncertainty surrounding trade policies has contributed to concerns over business investment and economic growth. Manufacturers have reported rising commodity prices due to tariff-related disruptions, leading to stalled or declining new orders.
The Federal Reserve’s monetary policy outlook has also shifted, with market expectations now indicating up to three interest rate cuts this year as the central bank seeks to mitigate economic risks.
“It’s a confluence of factors,” said Tom Fitzgerald, an airline industry analyst for TD Cowen. “It tends to be a sector where investors sell first and ask questions later.”
The downturn affected a wide range of sectors, with four out of five stocks in the S&P 500 declining on Tuesday. Ford and General Motors both fell by about 3 percent, while Tesla dropped 5 percent.
Financial and consumer discretionary stocks, including cruise lines and restaurants, were among the hardest-hit sectors. Airline stocks also suffered steep losses amid concerns that an economic slowdown could dampen travel demand. United Airlines fell nearly 7 percent, and Delta dropped about 6 percent.
European stocks also declined as investors assessed the implications of a global trade war. The Euro Stoxx 50 index fell 2.5 percent, marking its worst day since July 2023. Germany’s DAX index declined by 3.5 percent, erasing the previous day’s gains.
Following the implementation of the U.S. tariffs, Canada, Mexico, and China responded with their own levies. China announced tariffs of up to 15 percent on U.S. agricultural products and blacklisted over 20 American companies.
The move targeted major U.S. exports, including soybeans, meat, and grains. Mexico and Canada imposed tariffs on a broad range of U.S. goods, with Canadian Prime Minister Justin Trudeau stating that approximately $107 billion in U.S. products would be affected.
Mexico’s President Claudia Sheinbaum condemned the tariffs and announced that her government would respond with trade measures of its own, with details expected to be outlined in an upcoming rally.
Meanwhile, China’s Ministry of Commerce characterized the U.S. tariffs as a violation of international trade rules and pledged to retaliate accordingly.
The escalating trade tensions have raised concerns about inflation and economic growth. In the short term, tariffs are expected to contribute to higher consumer prices, prompting the Federal Reserve to maintain elevated interest rates. However, prolonged trade disruptions could slow economic expansion, potentially prompting the Fed to cut rates later in the year.
Oil markets also reacted to the latest developments. Brent crude fell 1.5 percent to $70.53 per barrel, influenced by reports that OPEC and its allies plan to increase production.
As the trade conflict continues to unfold, analysts warn of further market volatility. The potential for continued retaliatory measures between the U.S. and its key trading partners adds another layer of uncertainty for businesses and investors alike.
The situation remains fluid as global leaders assess their next steps in response to the ongoing economic challenges.
Top officials, including Treasury Secretary Scott Bessent and Secretary of State Marco Rubio, have spoken with their Chinese counterparts. However, Trump indicated that he is in no hurry to speak with Xi Jinping, the paramount leader of China.
During his first term, Trump placed tariffs on Chinese products to try to reduce China’s trade surplus with the United States, resulting in a two-year tit-for-tat trade war. In a deal that was struck in 2020, China pledged to buy an additional $200 billion in U.S. goods over two years but ultimately failed to fulfill its pledge.