Stocks racked up more losses on Wall Street Tuesday as a trade war between the U.S. and its key trading partners escalated, wiping out all the gains since Election Day for the S&P 500.
The benchmark index fell 1.2% and the Dow Jones Industrial Average shed 670 points, or 1.6%, The Nasdaq slipped 0.4% despite a rebound in big tech stocks such as Nvidia.
The burgeoning trade war between the U.S., China, Canada and Mexico is helping to extend a recent slump for U.S. stocks.
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The Trump administration imposed tariffs on imports from Canada and Mexico starting Tuesday and doubled tariffs against imports from China. All three countries announced retaliatory actions, sparking worries about a slowdown in the global economy.
The tariffs are prompting warnings from retailers, including Target and Best Buy, as they report their latest financial results. Target fell 2.4% despite beating Wall Street’s earnings forecasts, saying there will be “meaningful pressure” on its profits to start the year because of tariffs and other costs.
Best Buy plunged 12.1% for the biggest drop among S&P 500 stocks after giving investors a weaker-than-expected earnings forecast and warning about tariff impacts.
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“International trade is critically important to our business and industry,” said Best Buy CEO Corie Barry, claiming China and Mexico are the top two sources for products that Best Buy sells.
Imports from Canada and Mexico are now to be taxed at 25%, with Canadian energy products subject to 10% import duties. The 10% tariff that Trump placed on Chinese imports in February was doubled to 20%.
Retaliations were swift.
China responded to new U.S. tariffs by announcing it will impose additional tariffs of up to 15% on imports of key U.S. farm products, including chicken, pork, soy and beef, and expanded controls on doing business with key U.S. companies. Canada plans on slapping tariffs on more than $100 billion of American goods over the course of 21 days. Mexico also plans tariffs on goods imported from the U.S.
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Companies in the S&P 500 are wrapping up the latest round of quarterly financial reports. They've posted broad earnings growth of 18% for the fourth quarter. But Wall Street has already trimmed expectations for the current quarter to about 7% growth from just over forecasts of 11% at the beginning of the year.
Concerns about profits follow a series of economic reports with worrisome signals that include U.S. households becoming more pessimistic about inflation and pulling back on spending. Consumer spending has essentially driven U.S. economic growth in the face of high interest rates.
Wall Street has been hoping that the Federal Reserve would continue lowering interest rates in 2025. The central bank has signaled more caution, though, partly because of uncertainty surrounding the economic impact of tariffs. The Fed is expected to hold rates steady at its upcoming meeting later in March.
The Fed raised interest rates to their highest level in two decades in order to tame inflation. It started cutting its benchmark rate in 2024 as the rate of inflation moved closer to its target of 2%. But inflation remains stubbornly just above that target and tariffs threaten price increases that could fuel inflation.
