Stocks fell sharply on Monday after President Trump said he has decided to move forward with 25% tariffs on nearly all goods imported from Mexico and Canada, with Wall Street concerned that the import duties could threaten U.S. economic growth and reignite inflation.
The broad-based S&P 500 index tumbled 105 points, or 1.8%, to 5,850, marking its biggest one-day decline so far this year. The tech-heavy Nasdaq composite index shed 2.6%, while the Dow Jones Industrial Average fell 1.5%.
Additionally, new data from the Federal Reserve Bank of Atlanta is forecasting an economic contraction in the first quarter, with gross domestic product projected to decline an annualized 2.8% in the current quarter — a reversal from growth of almost 3% that was forecast as recently as early February.
Economists are sounding alarms about growing economic uncertainty caused by Mr. Trump tariffs, which could push up prices in the U.S. and undermine the president’s pledge to eliminate the inflation that ate into consumers’ purchasing power during the Biden administration. At the same time, recent economic data is showing some cracks in the financial health of U.S. households, with consumer confidence dropping in February to its lowest in four years.
“We expect that inflation in the U.S. will be stoked by between 1.1% and 1.4% from tariffs on Canada and Mexico, with another 0.7% coming from those slapped on China,” said Nigel Green, CEO of financial advisory firm deVere Group, in an email. “The economic implications are vast: the price of everyday goods will rise, corporate profits will feel the squeeze and consumers will ultimately foot the bill.”
Meanwhile, Americans say their outlook for the next year is mixed, with more people likely to say the economy is getting worse than better, according to CBS News polling. Consumers say they believe the economy and inflation should be Mr. Trump’s top issues, but most say they see the president prioritizing other issues, such as downsizing the federal workforce, another CBS News poll found.
The push behind Mr. Trump’s tariffs
Mr. Trump views tariffs — taxes on imports — as an economic elixir that can restore factories to the American heartland, raise money for the government and pressure foreign countries to do what he wants.
During his first term, Mr. Trump put tariffs on most Chinese goods and on imported solar panels, washing machines, steel and aluminum. The tax increases might have raised prices on those items, but they had little or no impact on overall inflation, which remained modest. Nor did they do much to restore factory jobs.
Economists agree that a second Trump trade war could be far costlier than the first.
“That was then. This is now,” said trade analyst William Reinsch of the Center for Strategic and International Studies.
During Mr. Trump’s first term, his trade team carefully focused its tariff hit list to avoid or at least delay the impact on consumers. They targeted industrial products and not those “that would show up on Walmart’s shelves,” said Reinsch, a former U.S. trade official. “That tamped down the impact.”
But Mr. Trump’s latest round of tariffs, “if pushed to their extreme,” could even trigger a recession, said EY-Parthenon chief economist Gregory Daco.
Because U.S. businesses must bear the added costs from tariffs, they largely pass on the costs to American consumers. That, in turn, could weigh on consumer spending at a time when households are still grappling with the fallout from post-pandemic inflation.
The Trump administration’s push to shrink the U.S. government, including through widespread job cuts, could have a ripple effect, curtailing spending by U.S. businesses.
“Federal workers all support jobs in the local economy by spending on Uber drivers, at restaurants, sporting events and barber shops,” Ryan Sweet, chief U.S. economist at Oxford Economics, told CBS MoneyWatch. “So there will be some negative effects elsewhere in the economy.”
