The “Phony” Trade War Is Over, The Real One Is Just Beginning
Truck with container on highway, cargo transportation concept into United States
For investors who thought President Trump’s tariff threats were merely a negotiating tool, what more needs to happen before they realize he is serious and willing to risk global weakness to get his way on trade issues?
Trump has now followed through on his threat to impose duties of 25% on imports from Canada and Mexico, even though both countries have taken steps to deal with illegal immigration and the flow of fentanyl to the U.S. He has also raised duties on Chinese goods by 20% after having raised them by 25% in his first term. The three countries are the largest trading partners of the U.S., accounting for more than 40% of U.S. trade.
Meanwhile, the Trump administration has begun a comprehensive review of duties imposed on U.S. exports that is due by April 1. The aim is to formulate a policy of “reciprocal trade,” whereby the U.S. would set duties on foreign goods that match levies imposed on U.S. goods. If they are implemented, the proposal could hit developing countries such as Vietnam and India the hardest, because they have higher tariff rates than industrial countries.
However, a broader array of considerations are cited in the review to determine whether countries have pursued unfair trade practices. This makes it difficult to assess how pervasive the duties will be.
President Trump, for example, has stated that the administration is planning to boost tariffs on goods made by the European Union by 25%, even though tariff rates in the EU are close to those in the U.S. White House officials have indicated that tariff rates would be based on taxes such as the EU’s value-added tax (VAT), as well as on non-tariff barriers that impose costs on U.S. businesses.
Finally, President Trump has announced product-specific tariffs that will apply to agricultural products, lumber, steel and aluminum, copper, semiconductors, pharmaceuticals and automobiles.
Amid all this, businesses, consumers and investors understandably are confused about the consequences these actions will have for the global economy. Following are my takeaways.
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First, the sweeping scope and magnitude of the prospective tariff hikes is unprecedented.
The Tax Foundation estimates that the Trump administration’s proposals that are country or region specific would impact about $2.0 trillion of U.S. imports, or 50% of the total in 2024. The tally shown below does not include the impact of reciprocal tariffs or product-specific tariffs, which have yet to be determined. The actions taken this week are estimated to increase the average U.S. tariff rate to 10%, the highest in the post-WWII era, and it will increase further as more tariffs are imposed.
Proposed Trump Admin Tariff Policies
Second, the statute used for implementing tariffs on Mexico, Canada, and China was the International Economic Emergency Powers Act (IEEPA), which authorizes a president to manage imports during a national emergency. Trump is the first president to use it to justify tariffs, and the action effectively kills the United States- Mexico-Canada Trade Agreement (USMCA) that he declared was the “greatest trade agreement ever.” No justification has yet been provided for levying tariffs on goods from the EU.
Third, both Canada and China have taken actions to retaliate, and Mexico will announce its response on March 9. China announced 15% tariffs on various agricultural items shipped from the U.S., and the Ministry of Commerce said it added 15 U.S. companies to its export control list, which would ban Chinese companies from exporting certain equipment to the U.S.
Prime Minister Justin Trudeau warned that Canada will not back down from a fight, and he said 25% duties would be imposed on $155 billion of U.S. goods. He also called Trump’s move “a very dumb thing to do.” Trump responded with a post on social media saying that when Canada puts on a retaliatory tariff, the U.S. will immediately increase tariffs by a like amount.
The end result is heightened uncertainty about the prospects for the global economy.
The main risk for Mexico and Canada is their economies could slip into recession if the tariffs are not rescinded. The likelihood is that European economies will face a third year of economic stagnation, while China will probably continue to experience sub-par growth.
The U.S. economy’s performance was the strongest of the industrial economies at the start of this year. However, there are signs that growth slowed during the first quarter, as consumers and businesses have turned cautious among all the changes the Trump administration is embarking upon. The risk is the economy could be headed for a bout of stagflation as tariffs boost consumer prices while the pace of economic growth moderates. If so, it will be difficult for the Federal Reserve to ease monetary policy significantly.
Finally, it is important for investors to recognize that the current situation is unprecedented during the post-World War II era.
One analogy is the “Phony War” period — the term U.K. journalists used to describe the six-months during which no land operations were undertaken after the German conquest of Poland in September 1939. This raised false hopes that fighting could be averted.
Until recently, the negotiations between the U.S. and its trading partners left investors hopeful that trade deals could be struck, and many still believe tariffs will be temporary. However, the situation may be getting out of hand, and conditions may get worse before the conflict is resolved. Hopefully, the Trump administration will take its cue from the way financial markets are reacting to the threat of tariffs.
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The S&P 500 (^GSPC) eliminated its post-election gains during Tuesday’s volatile session as stocks responded to fresh tariffs on Canada, Mexico, and China.
The Dow Jones Industrial Average (^DJI) fell about 1.5%, or over 650 points, as losses escalated into the close, while the benchmark S&P 500 dropped around 1.2%, hitting its lowest level in four months. The tech-heavy Nasdaq Composite (^IXIC), which traded in the green at one point of the trading day, closed down about 0.4% but was able to avoid entering correction territory.
Stocks are retreating as markets assess the likely impact of Trump’s broad tariffs on America’s top trading partners. The measures — fresh 25% tariffs on Canada and Mexico, and a doubling in China duties to 20% — were signed into effect at midnight ET on Tuesday.
Canada hit back with a sweeping package of immediate tariffs on US imports, while China retaliated with additional 15% duties on US farm products such as chicken and pork, to come on March 10. Many saw Beijing’s response as less aggressive than feared, leaving room for negotiation with Trump.
Target (TGT) warned that tariffs will put pressure on first quarter profit as it delivered an earnings beat before the bell. The retail giant’s stock was little changed in early trading. Meanwhile, its sector peer Best Buy (BBY) put out a muted annual sales forecast alongside its own quarterly beat. The additional sign of consumer caution helped send its shares lower.
Flutter (FLUT) stock rose about 3% in after-hours trading after the comapany’s fourth quarter earnings per share surpassed Wall Street’s estimates while revenue came in just short of expectations.
For the quarter Flutter reported adjusted earnings per share of $2.94 on revenue of $3.79 billion. Wall Street had expected earnings per share of $1.73 on revenue of $3.83 billion.
“We’ve seen a strong start to 2025 including record levels of customer engagement for the Super Bowl, with almost half a billion dollars wages of the day and around 17,000 bets per minute at peak levels of engagement the Super Bowl,” Flutter CEO Peter Jackson told Yahoo Finance.
Flutter issued more guidance in its US business for full-year 2025 roughly in line with Wall Street’s expectations. The company expects US revenue to be in a range of $7.47 billion to $7.97 billion. Wall Street had projected revenue of $7.69 billion.
Broad concerns about a consumer spending slowdown have swirled recently but Jackson told Yahoo Finance that in prior economic downturns the gambling business has been “incredibly resilient” and he would expect a similar outcome should the macroeconomic scenario in the US worsen further.
“I’m very pleased with the momentum that we bought into the into the year, the performance we saw through the Super Bowl,” Jackson said.
The S&P 500 (^GSPC) wiped its post-election gains on Tuesday as stocks extended declines on the heels of fresh tariffs on Canada, Mexico, and China.
The Dow Jones Industrial Average (DJI) fell about 1.5% as losses escalated into the close, while the benchmark S&P 500 (GSPC) dropped around 1.2%. The tech-heavy Nasdaq Composite (IXIC), which traded in the green at one point of the trading day, closed down about 0.4% but avoided entering correction territory.
Trump-based euphoria has evaporated from the stock market as recent tariff escalations and disappointing data spark growth fears. Beyond the broader markets, certain sectors initially expected to perform well under a Trump administration have also lagged since the election.
Immediately following Trump’s win, small caps surged, with the Russell 2000 (^RUT) outperforming the leading market indexes. But the rally was short-lived, and the index is now down about 8% since its Nov. 5 close.
Companies within the small-cap index, which include regional banks and smaller domestic players, were expected to benefit from anticipated policies from the Trump administration, such as lower taxes and deregulation. However, those policies have yet to materialize as tariffs remain the administration’s current priority.
Meanwhile, sectors like Energy (XLE) and Industrials (XLI) also jumped in the aftermath of Trump’s victory due to expectations of more M&A, a steeper yield curve, and less regulation. Both have fallen around 3%.
Financials (XLF) have been the lone exception, up about 7% since Nov. 5.
And bitcoin (BTC-USD), one of the biggest beneficiaries of the post-election rally, has perhaps lost the most momentum after first exceeding $100,000 a coin late last year. The largest cryptocurrency is now trading at around $85,000, down about 22% from an all-time high of just above $109,000 in mid-January.
Read more here.
Yahoo Finance’s Ines Ferré reports
Gas prices are expected to rise in certain states as early as Tuesday as Canadian crude product imports get hit with duties as part of President Donald Trump’s tariff plan.
The Trump administration implemented 25% tariffs against imports from Canada and Mexico, carving out an exception for Canadian oil products, which are levied at 10%.
The US imports roughly 4 million barrels of oil a day from Canada. The majority is sent via pipelines to the Midwest, Rocky Mountains, and Great Lakes region. New England receives refined products like gasoline, diesel, and jet fuel directly from Canada, meaning fuel prices will likely increase in that region first.
Prices in Maine, Vermont, Connecticut, Massachusetts, Rhode Island, and New Hampshire will start rising as early as Tuesday to sit anywhere between $0.20 and $0.40 per gallon higher by mid-March, according to GasBuddy head of petroleum analysis Patrick De Haan.
“That’s only the impact from the tariffs,” De Haan told Yahoo Finance, noting a yearly changeover to a more expensive summer blend could further impact prices.
On Tuesday, the national average price for gasoline hovered around $3.10 per gallon, about the same price as a month ago and $0.25 less than exactly one year ago, according to AAA data.
Read more here.
Intel (INTC) stock sank 6% midday Tuesday, adding to Monday’s 4% drop after its Taiwanese rival TSMC (TSM) joined President Trump at the White House to announce a $100 billion investment in its US manufacturing capabilities.
Intel stock had risen as much as 5.5% earlier in the day Monday on a Reuters report that AI chip designers Nvidia and Broadcom are testing its new manufacturing technology but sharply reversed direction following the TSMC announcement.
Intel began making chips for outside customers in 2021, and the storied chipmaker has positioned itself as the American alternative to foreign semiconductor manufacturers — namely TSMC — as the US pushes to bring back domestic chip production and maintain its lead in the emerging AI market. Analysts have widely argued that the US can better achieve its goal by incentivizing TSMC to expand US operations rather than betting on troubled Intel.
Intel shares had experienced a historic rally earlier in February on news that the US government was working on a deal with TSMC to aid the ailing chipmaker. Intel last week pushed back the deadline for its $28 billion Ohio chip factory to come online.
It was a sea of red on Tuesday, with all 11 sectors in negative territory as Trump’s tariff escalations wreaked havoc on Wall Street.
Financials (XLF) led the way lower, down 3%, followed by Consumer Discretionary (XLY) and Industrials (XLI), which declined 1.5% and 1.4%, respectively.
Within the tech sector, Nvidia shares (NVDA) rose 2% after falling nearly 9% on Monday. Alphabet shares (GOOG, GOOGL) also traded 2% higher while Meta (META) and Tesla (TSLA) continued to slide, down about 3% and 5%, respectively.
As stocks sell-off, investors are flocking to the bond market.
US Treasury yields are now trading at levels not seen since late last year as investors worry Trump’s tariffs will hurt economic expansion and the labor market, potentially prompting the Federal Reserve to lower the cost of borrowing even as risks of higher prices remain tilted to the upside.
The 10-year yield (^TNX) has sunk over 63 basis points from its January high to trade at just around 4.15%.
But as Citi analyst Stuart Kaiser put it in a new note on Monday, “Rates are lower for the ‘wrong’ reasons.”
Recent data has highlighted these growth concerns, marking the return of “bad news for the economy is bad news for stocks.” On Monday, ISM Manufacturing prices paid came in at their highest since June 2022 while new orders fell into contraction, suggesting a “stagflationary” environment in which growth slows but price increases remain elevated.
Meanwhile, confidence plummeted in February, notching its biggest monthly decline in nearly four years as 12-month inflation expectations jumped and recession fears escalated. The latest consumer sentiment reading also highlighted greater concerns around tariffs and the impact those and other policies could have on inflation and the broader economy.
Traders now expect three rate cuts from the Federal Reserve this year, according to the CME FedWatch Tool.
As weaker-than-expected data has spurred concerns about US economic growth, markets have moved to price in more easing from the Federal Reserve this year.
On Tuesday, traders were betting on three interest-rate cuts from the Fed in 2025, for the first time this year. Debate around when the Fed’s next rate cut will come has intensified too. Markets now see a 50/50 chance the Fed lowers rates at its May meeting, per the CME FedWatch Tool. Just a week ago, they were pricing in a 75% chance the Fed would hold rates steady that month.
But stocks have slumped amid a shifting Fed narrative, and the S&P 500 (^GSPC) is now at its lowest level since before Donald Trump won the presidential election in November.
While rate cuts could bring benefits like lower borrowing costs for corporates, Citi equity strategist Drew Pettit sounded a note of caution. He told Yahoo Finance that if soft economic data drives the Fed to ease monetary policy, markets won’t welcome the news as they have in the past.
“‘Fed cuts because of weak economic data’ is not a good thing for markets anymore,” Pettit said. “If we were talking about this two months ago, you know ‘Fed cuts against a resilient backdrop’ was good for markets.”
US markets have eliminated all their post-election gains as stocks deepen their sell-off with fresh tariffs on Canada, Mexico, and China now officially in effect.
The S&P 500 (^GSPC) has erased about $3.3 trillion in market cap since its record closing high of 6,144.15 on Feb. 19. At that time, the benchmark index’s post-election gains had been hovering at just around 6%.
Since the start of 2025, the S&P 500 is down around 2% while the Nasdaq Composite (^IXIC) is off nearly 6% and is currently flirting with correction territory, on track to close 10% off its record high. The blue-chip Dow (^DJI) is trading just barely in the green for the year.
Only a few months ago, stocks traded at consistent records as Donald Trump’s presidential win fueled bullish Wall Street euphoria on hopes of pro-business policies and lower taxes.
Flash forward to today, and that euphoria has all but evaporated as Trump’s tariffs spark growth fears while inflation remains stubbornly elevated.
“Many of the key trends in financial markets in the run-up to and immediate aftermath of the US election last November have stalled or partly reversed since President Trump took office last month,” Jonas Goltermann, deputy chief markets economist at Capital Economics, wrote in a note last week.
“Since then, US Treasury yields have dropped back, the 2-10s curve has flattened, US equities have struggled both in absolute terms and relative to those elsewhere, and the dollar has dropped back,” he said. “In other words, the ‘Trump trade’ narrative that dominated many markets in Q4 is floundering.”
US stocks continued their sell-off on Tuesday as fresh tariffs on Canada, Mexico, and China officially went into effect at midnight.
The Dow Jones Industrial Average (^DJI) fell about 0.7%, while the benchmark S&P 500 (^GSPC) dropped 0.8%. The tech-heavy Nasdaq Composite (^IXIC) shed around 0.9%, as all three indexes took a leg lower.
US Treasury Secretary Scott Bessent argued that a market sell-off in response to new tariffs would be temporary, Bloomberg reports, though he acknowledged there may be a transition period as new duties on Canada, Mexico, and China take effect.
The Treasury Secretary’s comments come after stocks plummeted Monday in response to the tariffs. On Tuesday morning, futures for Dow Jones Industrial Average futures (YM=F) fell 0.3%, while S&P 500 futures (ES=F) dropped 0.8%. Contracts on the tech-heavy Nasdaq 100 (NQ=F) shed nearly 1%.
Bloomberg reports:
US Treasury Secretary Scott Bessent projected confidence in President Donald Trump’s expansive plans to tariff foreign nations even as the stock market slumped in reaction to the first round of levies on Canada and Mexico.
“Over the medium term, which is what we’re focused on, it’s a focus on Main Street. Wall Street’s done great, Wall Street can continue to do fine, but we have a focus on small business and consumers,” Bessent said on Fox News’s Fox & Friends Tuesday. “So we are going to rebalance the economy.”
Read more here.
The risk to global growth from Trump’s tariffs is rattling bond investors, who appear increasingly convinced that the president is no longer just making threats as a precursor to a deal.
Traders also ramped up bets on the Federal Reserve making more interest-rate cuts than previously expected.
Bloomberg reports:
The US yield curve steepened in jittery markets as weeks of tariff threats from President Donald Trump came to fruition, fueling concerns about the impact on global growth.
Rates on 30-year Treasuries (^TYX) rose one basis point as of 12:19 p.m. in London, as yields on shorter-maturity securities fell five basis points, following the imposition of levies on Canada, Mexico and China. Traders added to bets on US interest-rate cuts, fully pricing three more quarter-point reductions this year.
Yield curves also steepened in Europe, with rates on two-year German bunds falling five basis points to 2.02%. Traders amped wagers on easing from the European Central Bank on concern that the euro area will be next to face levies, while an aggressive ramp up in EU defense spending pinned the spotlight on growing government deficits.
“We see structurally steeper curves,” said Mohit Kumar, chief economist and strategist for Europe at Jefferies, who favors this trade in the UK and Germany. “Our view remains that tariffs are not an inflation story but a growth story.”
Read more here.
Shares of Okta jumped in premarket trading Tuesday after the identity and cybersecurity company reported solid sales, earnings, and 2025 profit guidance.
All three metrics beat Wall Street analysts’ estimates as the company benefitted from increased corporate spending on cybersecurity protection amid the AI boom.
Okta stock rose 14% Tuesday morning and was a trending ticker on Yahoo Finance.
“This is a blowout quarter,” Okta co-founder and CEO Todd McKinnon told Yahoo Finance’s Brian Sozzi in an Opening Bid podcast exclusive. “It’s reflective of big deals in the quarter,” McKinnon said, pointing to a 25% surge in subscription backlog to more than $4 billion.
Read more here.
Target’s (TGT) earnings just hit the wires.
And while the earnings beat will quickly grab your eyes, it’s more important to lock in on this line from the release given all the risk around tariffs:
“In light of ongoing consumer uncertainty and a small decline in February net sales, combined with tariff uncertainty and the expected timing of certain costs within the fiscal year, the company expects to see meaningful year-over-year profit pressure in its first quarter relative to the remainder of the year,” Target said.
Target declined to share specific first quarter earnings guidance. Yahoo Finance data shows Wall Street analysts were looking for a slight first quarter year-on-year earnings improvement.
Economic data: No notable economic data expected.
Earnings: Target (TGT), Best Buy (BBY), AutoZone (AZO), On Holding (ONON), CrowdStrike (CRWD), Nordstrom (JWN), Ross Stores (ROST)
Here are some of the biggest stories you may have missed overnight and early this morning:
Trump pulls trigger on threatened tariffs that could recoil on US
Canada hits back with sweeping tariffs on $107B of US products
Trump 2.0’s agenda is hitting the economy at a fragile moment
China puts extra tariffs of up to 15% on major US farm imports
GOP lawmakers turn up the heat on the Fed over dual mandate
Tesla’s EV sales in China fall 49% in February
China leaves door open for talks with measured tariff response
Why tariffs ‘aren’t the problem’ in the stock market: Veteran
China’s tit-for-tat move to Trump was to slap tariffs of up to 15% on US farm goods such as pork and beef, starting next week. That’s going down generally well on Wall Street, which sees the targeted action as designed to avoid escalating a trade war between the world’s top two economies.
Bloomberg reports:
The Chinese response throws the ball back into the US court, with Trump’s review of Beijing’s compliance with the first trade agreement due in April adding to the urgency for negotiation. While Trump signaled a desire to speak with President Xi Jinping early last month, they have yet to have a call since the US leader took office.
“So far, China has given a measured, proportional response as they do not want to further escalate the situation,” said Henry Gao, a law professor at Singapore Management University who researches Chinese trade policies. “Once the April measures are out, that’s when China will likely negotiate with the US.”
The latest trade salvos came a day before Xi heads into the government’s biggest political meeting of this year, where his lieutenants will unveil their economic blueprint for 2025.
“I think the two most important reaction measures are still yet to come: the PBOC’s currency response and the fiscal package to be announced at the National People’s Congress,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong.
Read more here.
US President Donald Trump’s plan for wide-ranging tariffs against Canada and Mexico has occurred with no further delays.
Yahoo Finance’s Ben Werschkul reports:
A second round of tariffs from Donald Trump starts today with new duties on America’s top three trading partners: Canada, China, and Mexico.
There is “no room left for Canada or for Mexico,” Trump reiterated Monday afternoon at the White House, saying he wouldn’t pare back his tariffs levels on those two countries.
“They’re all set,” he added.
The president is imposing 25% duties on Canadian and Mexican imports following a 30-day pause. He is also implementing a second round of 10% duties on Chinese imports to increase the blanket tariffs on that nation to 20%.
The president signed an action on Monday afternoon with the new duties against China in an order that charged the country “has not taken adequate steps to alleviate the illicit drug crisis.” The duties on Canada and Mexico required no action this week as Trump’s previously signed order — with a March 4 deadline — simply went in into effect.
Read more here.
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