Trump’s tariff war triggered retaliation, causing U.S. stocks to fall in early trading, mainly through the following transmission:
Tariff war and retaliatory measures
Trump’s tariff measures: On March 3, 2025, local time, Trump announced that he would impose a 25% tariff on Canadian and Mexican goods on March 4, and a 10% tariff on Chinese products exported to the United States on the same day.
Retaliatory measures of various countries: The Canadian Prime Minister’s Office issued a statement saying that it would retaliate against the United States with equal tariffs, immediately impose a 25% tariff on US imports worth 30 billion Canadian dollars, and impose a 25% tariff on US imports worth 125 billion Canadian dollars within 21 days. Mexican President Sheinbaum said that he would announce countermeasures against the US tariffs on Mexico on the 9th.
Market panic spreads
Investor confidence is frustrated: The escalation of the tariff war has broken the market’s original stable expectations, and investors are worried about the future economic situation and corporate profitability. Increased uncertainty has made investors more cautious, and they have chosen to reduce their positions or leave the market, resulting in capital outflows from the stock market, which in turn has driven down stock prices.
Rising fear index: Wall Street’s so-called fear index VIX broke through 22 points, reaching its highest level since December last year, which shows a sharp rise in market panic, further exacerbating the selling pressure on the stock market.
Concerns about corporate profits
Rising costs: US companies import a large amount of raw materials, parts and finished products from countries such as Canada, Mexico and China. After the imposition of tariffs, the import costs of companies have increased significantly, squeezing profit margins. Especially for companies that rely on imported supply chains, such as automobiles and electronics, rising costs may lead to higher product prices, weaken market competitiveness and affect sales performance.
Obstructed exports: The retaliatory tariff measures of trading partners will make US companies face greater obstacles to exports, and export market share may be seized by companies in other countries, further affecting the company’s profit expectations. For example, the export of agricultural products and manufacturing products in the United States is restricted, and the revenue and profits of related companies may be affected. Investors are pessimistic about the future development of these companies, which leads to a decline in related stock prices.
Macroeconomic expectations worsen
Economic growth concerns: Tariff wars will undermine the stability of the global industrial chain and supply chain and hinder the normal progress of international trade. Erin McLaughlin, senior economist at the World Federation of Conference Board, believes that goods from Canada, Mexico and China account for 41% of US imports, and tariffs will have a significant impact on multiple industries in the United States, which may cause the US real GDP growth rate to fall by 0.9 percentage points after four quarters.
Rising inflationary pressure: The imposition of tariffs will increase the prices of imported goods, which will in turn drive up the overall price level and bring inflationary pressure. BMO Capital Markets raised its forecast for US PCE inflation in 2025 by 0.3 percentage points to 3%. This rise in inflation expectations will affect the Federal Reserve’s monetary policy decisions. The market is worried that the Federal Reserve may adopt tightening policies such as raising interest rates to deal with inflation, which is also a disadvantage for the stock market.
The combined effect of the above factors caused the U.S. stock market to fluctuate and fall after opening on March 4, Eastern Time. The S&P 500 index wiped out all gains since the U.S. election, and the market value evaporated by 3.4 trillion U.S. dollars. The Dow Jones Industrial Average fell 1.85% and the Nasdaq fell 1.72%.
