U.S. stocks fell sharply on Tuesday as markets responded to new tariffs imposed by the United States on major trading partners. President Donald Trump’s decision to introduce higher import taxes from Canada, Mexico, and China led to a broad selloff, with analysts citing concerns over trade policy and economic stability.
The Dow Jones Industrial Average dropped 800 points, or 1.86%, while the S&P 500 declined 1.87%, erasing all gains since Trump’s reelection.
The Nasdaq Composite dropped by 1.68%, momentarily entering correction territory. The VIX index, which measures market volatility, increased to its highest level this year.
Stocks sink as Trump imposes new tariffs
Stock declines extended beyond the U.S. The STOXX Europe 600 fell by 1.9%, and Germany’s DAX dropped by 3%. Japan’s Nikkei 225 lost 1.2%, while Hong Kong’s Hang Seng declined by 0.28% in Asia. China’s Shanghai Composite rose slightly by 0.22%, reflecting a mixed reaction.
President Trump says there is no way Canada and Mexico can avoid the tariffs going into effect tonight.
The Dow is now down -730 points and the Nasdaq down -480 points.#Trump #US #Canada #Mexico #tariffs #market pic.twitter.com/9aCHMxEcNT
— AI Day Trading (@ai_daytrading) March 4, 2025
Currency markets also experienced movement. The U.S. dollar weakened, while the Mexican peso declined and Canada’s dollar edged higher. Gold prices increased, indicating that some investors sought safer assets amid market uncertainty.
New tariffs introduced
The sell-off followed the U.S. decision to impose a 25% tariff on imports from Canada and Mexico and increase tariffs on Chinese goods by 10%, raising the total rate to 20%.
Large tariffs are about to hit Mexico and Canada, but FX markets price very little. Mexican Peso is flat since inauguration (lhs, blue), as is Canadian Dollar (rhs, blue). After the back and forth over Mexico and Canada one month ago, markets no longer believe US tariff threats. pic.twitter.com/ollon4JJkx
— Robin Brooks (@robin_j_brooks) March 3, 2025
China announced immediate countermeasures by introducing tariffs on U.S. agricultural products, including chicken, pork, and beef. Canada also implemented a 25% tariff on $20.7 billion of U.S. goods, with further actions planned in three weeks.
Economic outlook
The Federal Reserve Bank of Atlanta now projects that U.S. economic growth could decline by 2.8%, adding to concerns about inflation and job losses. Consumer confidence indicators suggest that households might be adjusting spending patterns in response to economic uncertainty.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the market is responding to policy changes previously seen as part of a negotiation process.
“The market finally took the Trump administration at its word, and the realization that the tariff talk wasn’t just a negotiating tactic is starting to sink in,” Zaccarelli said.
Trump to address Congress as the market adjusts
President Trump will deliver his first State of the Union address during his second term on Tuesday, centered on “Renewal of the American Dream.” The upcoming speech follows the market downturn as investors continue to assess the economic impact of new trade policies.
Market sentiment indicators showed a continued cautious outlook. CNN’s Fear and Greed Index remained in the “extreme fear” range for the sixth day, reflecting investor concerns about ongoing trade developments.
Despite market declines, some financial experts noted that such downturns have historically provided opportunities for long-term investors.
“While every situation is different, historically, buying the dip after such single-day declines has been a successful strategy on average,” said George Smith, a portfolio strategist at LPL Financial. With no clear resolution on trade negotiations, markets are expected to remain sensitive to further developments.