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The market sold off this morning after President Donald Trump announced sweeping tariffs over the weekend to take effect Tuesday. The broader benchmark S&P 500 fell over 1.7%, as of 9:55 a.m. ET. Meanwhile, the Dow Jones Industrial Average fell over 600 points and the Nasdaq Composite also fell 2%.
However, stocks had recouped a majority of the losses as of midmorning, after Mexican President Claudia Sheinbaum announced an agreement with the U.S., leading to a delay in implementation of tariffs on her country. Trump has a call scheduled with Canadian Prime Minister Justin Trudeau at 3 p.m. ET.
Shares of Nvidia (NASDAQ: NVDA) traded 2.3% lower as of 11:03 a.m. ET. Shares of Tesla (NASDAQ: TSLA) were down 4.6%, while shares of Taiwan Semiconductor Manufacturing (NYSE: TSM) traded about 2.7% lower.
A drug war escalating into a trade war?
The Trump administration initially announced 25% tariffs on all imports on goods from Mexico and most imports from Canada. Additionally, Trump imposed 10% tariffs on Chinese imports and Canadian energy products. The tariffs were set to take effect tomorrow.
The administration positioned the tariffs as a way to gain leverage over Canada and Mexico to further clamp down on illegal immigration and drugs flowing into the U.S. On Truth Social, Trump said:
Canada doesn't even allow U.S. Banks to open or do business there. What's that all about? Many such things, but it's also a DRUG WAR, and hundreds of thousands of people have died in the U.S. from drugs pouring through the Borders of Mexico and Canada.
He also acknowledged that Americans may feel some pain but said it would worth it.
Tariffs are a tax on foreign imports. They often make U.S. goods and services more competitive but can lead to higher consumer prices because of less competition and the fact that foreign countries can often produce goods and services at a lower cost. Trump also hinted that the European Union may be his next tariff target.
While Trump positioned the tariffs as a bargaining chip, officials from Canada and Mexico initially said they would respond with tariffs of their own, setting the scene for a trade war. Trudeau said Canada would impose 25% tariffs on $106 billion of U.S. goods ranging from American alcohol to household goods. China had yet to say it was retaliating, as of this writing. In 2024, over 40% of total U.S. imports came from Mexico, Canada, and China, according to NBC. Trump did say he is in contact with Trudeau and would be speaking to him later today as well.
The tariffs set to go in place do not necessarily directly impact the major artificial intelligence (AI) players like Nvidia but they do send a message that the Trump administration could be more serious about tariffs than many believed when he took office. Following the emergence of DeepSeek, a Chinese AI chatbot reportedly made at a fraction of the cost of OpenAI's ChatGPT, media reports circulated suggesting Trump may ramp up export restrictions on chips sold to China. The new tariff announcements may exacerbate those fears.