It’s an uncertain time for investors and consumers alike. The Trump administration imposed tariff disruption of 25% charges on most imports from Mexico and Canada and an additional 10% on top of existing tariffs for Chinese imports have set off a three-front trade war for the U.S.
There are already retaliatory tariffs from the three countries. Investment markets are showing concern and displeasure. There are increased chances of a recession and possible inflation.
Most investors could benefit from one simple action: Do not make hasty decisions because things will change again, eventually in your favor. More on that in a minute as to why it makes sense.
Tariff disruption gets responses.
Even with the market leverage and economic power of the U.S., it is impossible to start a trade war without sharp and immediate retaliatory actions.
Canada imposed a 25% tariff on $30 billion and, after 21 days, on an additional $125 billion in U.S. goods. “Our tariffs will remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” read a statement from Prime Minister Justin Trudeau.
Ontario Premier Doug Ford is close to blocking experts of nickel to the U.S., and action he claimed would “shut down manufacturing” here, the National Post reported. While his statement is overly broad, it would heavily limit important areas like stainless steel and battery manufacturing.
President Claudia Sheinbaum of Mexico promised countermeasures later this week, as The New York Times reported. “Last night, the White House released an offensive, defamatory, and unsubstantiated statement about the Mexican government that we strongly deny and categorically condemn,” Sheinbaum said in a translation from Spanish that The Times provided. “The unilateral decision taken by the United States affects national and foreign companies that operate in our country and affects our people. Therefore, we have decided to respond with tariff and non-tariff measures that I will publicly announce next Sunday.”
The Wall Street Journal reported that China filed a lawsuit with the World Trade Organization. It has added 15 U.S. companies to its export-control list and expanded its “unreliable entity” list. The country also added 15% tariffs on chicken, wheat, corn, and cotton, and 10% on sorghum, soybeans, pork, beef, seafood, fruits, vegetables, and dairy that start March 10, 2025.
Mexico, Canada, and China are the first, second, and third largest trading partners of the U.S.
Market reactions to tariff disruption.
Equities markets indicated distress in a number of ways. The S&P 500, the Dow Jones Industrial Average, and the Russell 2000 all dropped once the news of the tariffs was certain. Gold jumped, as it frequently does in times of stress. The VIX volatility index was up to 26 today. A value of 20 is taken to mean unusual levels of volatility in the S&P 500.
“Now, it doesn’t mean that there’s a recession,” Sevens Report Research’s Tom Essaye told Barron’s. It doesn’t mean that there’s a crash, right? But it does mean that this market does not deserve to be at 22 times earnings anymore.”
What it means, though, is that the Dow, S&P 500, and Nasdaq wiped out post-election gains in the selloff, as Yahoo Finance reported. The Nasdaq did see a slight gain after an earlier loss, but it had been on track to come within 10% of its December 16, 2024, record high close, which would mean its current position would still be a correction.
As of 2 pm Eastern time on Tuesday, March 4, the yield on the 10-year Treasury Note was 4.207%. It had dropped to 4.159% the day before, which was a low since December 11, 2024. The higher the yield, the more expensive borrowing costs are for longer-term lending, including 30-year mortgages.
Uncertainty and fear are starting to hit the economy more broadly. “As a result of import tariffs placed on Canada, Mexico, and China today, we estimate that if there are proportionate retaliatory tariffs by Canada and Mexico and are all maintained throughout 2025, it could detract over 1.0 percentage points from GDP growth and raise inflation by 0.6 percentage points (ppts) this year relative to our prior baseline forecast of solid growth around two percent,” Nationwide Chief Economist Kathy Bostjancic wrote in prepared remarks on Tuesday.
Here’s why to remain calm and carry on.
At times of trouble, one of the worst things you can do as an investor is jump to a panic sale. The reason is that typically markets swing back over time. Here’s an example from the Great Recession. In October 2007, the S&P 500 topped 1,500. At its bottom in February 2009 it was at about half that value. By early in 2013, it reached the previous high.
That was a long stretch but from a very steep drop. What is happening now seems unlikely to be anywhere near that bad.
Not everyone can afford to wait for tariff disruption to end. If you have immediate retirement or some previously planned need for your income in the next six to 12 months, maybe some selling off would make sense. But for most people, waiting a few years to avoid a big loss is an intelligent move.
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