Stock Market Reacts to U.S. Tariffs on Mexico, Canada, China

Tariffs imposed by President Donald Trump on Canada, China and Mexico will have a notable impact on the stock market if they remain in place for a prolonged period of time, according to market experts. However, many also doubt the tariffs are a long-term policy for the administration.

Trump announced a 25 percent tariff on most Canadian and Mexican goods and a 10 percent tariff on most products from China on Friday, prompting immediate responses over the weekend from all three countries, including a proposed 25 percent retaliatory tariff from Canadian Prime Minister Justin Trudeau.

By Monday morning Trump announced he was pausing the tariffs on Mexico for one month after Mexico agreed to reinforce its northern border with an estimated 10,000 National Guard members to help stem the flow of illegal drugs such as fentanyl.

Additionally, Mexican President Claudia Sheinbaum said the agreement requires the U.S. to help prevent the trafficking of weapons to Mexico.

The Dow Jones Industrial Average initially fell more than 700 points just after the opening bell Monday morning in response to potential trade war actions over the weekend. But the market began to recover many of those losses after Trump’s announcement of the pause on tariffs with Mexico.

Fifth Third Bank Chief Economist Jeffrey Korzenik said on Monday morning that any tariffs imposed on Canada, China and Mexico is generally a negative for the U.S. over the short to intermediate term.

“(The move risks) inflation and slower growth as the (U.S. Federal Reserve) will keep rates higher and consumers get squeezed from inflation,” Korzenik said. He added that supply chains would see disruption, further risking the flow of goods.

Yet the impact on other countries would in turn impact the U.S. as well, he added.

“It also weakens the economies of many of our trading partners, which can come back to hurt us,” Korzenik said.

On the other hand, there could be some long-term benefit to tariffs, Korzenik added. If tariffs remain in place, and were combined with other regulatory reform, strong energy policies and workforce strategies, some jobs could return to the U.S.

“You could potentially see the growth of manufacturing jobs in the U.S. accelerate if (the administration) keeps tariffs in place,” Korzenik said. “But that’s a lot of ‘ifs’”.   

According to a Sunday article by Brett Schafer for The Motley Fool, there’s approximately a 10 percent chance that the stock market will fall 20 percent each year, regardless of fiscal policies and the current economic climate.

Despite the announced tariffs, most economists interviewed by traditional media outlets Monday believe that chances of further corporate growth and slowing inflation remain strong. Ryan Detrick, chief market strategist at the Carson Group told CNBC on Monday that many of the factors influencing a bull market remain, including consumer spending, higher wages and corporate profits. Detrick anticipated lower interest rates would follow, assuming inflation continues to moderate.

“We think the bull is alive and well,” Detrick said in the CNBC article.

The New York Times’ “The Morning”email newsletter Monday morning outlined three reasons that Trump and his administration have likely chosen to impose tariffs. First is to force other neighbors to help improve national security by working to curb illegal immigration and drug trafficking.

Second, according to the newsletter article by Times’ writer German Lopez, is to improve the U.S. outlook in the manufacturing sector, which in theory could drive more manufacturing to the U.S., creating more jobs, and making U.S. products more attractive for global importers.

The third reason for tariffs is to increase revenue. This could help the administration justify income tax cuts for Americans, Lopex theorized.

J.P. Morgan Wealth Management sent an email to its clients Monday that indicated its market strategists consider prolonged tariffs could lower expectations for U.S. growth by as much as 1 percent in 2025 with higher volatility. Tariffs and inflation could also led to a strong U.S. dollar relative to major trading partners, the email indicated.