By David Uberti, Ryan Dezember and Vipal Monga
Stock futures fell and oil prices rose Sunday after the U.S. imposed sweeping tariffs on imports from major trading partners, jolting Wall Street's outlook for the American economy.
Futures linked to the tech-heavy Nasdaq Composite led the declines, falling by more than 2%, while the S&P 500 slipped by 1.6%. Dow Jones Industrial Average futures slid by about 1.1%, or around 500 points. Changes in futures prices don't always reflect market moves after the opening bell.
"Markets are likely to take the announcement of sudden tariffs poorly," TD Securities told clients Sunday night, "with risk assets caught in the cross-hairs."
While major indexes remain near record highs, Sunday's selloff offered an early glimpse of Wall Street's response to President Trump's threatened trade wars becoming reality. Until recently, many on Wall Street saw threats of the U.S. imposing the highest tariffs in decades as a negotiating tactic in border disputes over drug trafficking and migration and unlikely to materialize.
But the Trump administration in recent days has said 25% tariffs on goods from Canada and Mexico, as well as a 10% levy on Chinese imports, will begin Tuesday. Even Canadian energy supplies, including cheap crude funneled to Midwestern refineries, will face a 10% duty.
Benchmark U.S. crude futures rose roughly 2% on Sunday night, trading around $74 a barrel.
Speaking in the Oval Office Friday, the president suggested tariffs on the three countries are just the opening salvo, promising additional taxes on computer chips, pharmaceuticals, steel, aluminum and copper imports as soon as mid-February.
"That'll happen fairly soon," Trump said, adding that he also wants to hike tariffs on the European Union, which has "treated us so horribly."
Investors and traders have struggled to gauge the potential fallout from trade disputes in part because the scope of retaliation by other countries and the effect on producers of exported goods is unclear.
Canadian Prime Minister Justin Trudeau this weekend said his country would counter by hitting $105 billion of American goods with 25% tariffs starting Tuesday. A list of more than 1,000 initial targets ranged from cigarettes and whiskey to motorcycles and guns, with subsequent duties anticipated for cars, steel and aluminum. Mexico's response is expected on Monday.
Wall Street is particularly concerned about potential tit-for-tat measures by China. Any attempt to protect the country's manufacturers by weakening the yuan "can have reverberations across the market," Goldman Sachs told clients, "but again the state of negotiations and potential for a quick reversal makes this more uncertain."
On Sunday, the value of the U.S. dollar climbed against a basket of foreign currencies, trading at some of its highest levels since the Federal Reserve in 2022 began lifting interest rates to tamp down inflation. The greenback's move promises to pressure many companies that sell goods or services abroad.
Already, Trump's pledge to tilt the U.S. away from free trade, coupled with promised tax cuts, has boosted many investors' inflation expectations. A selloff in bonds in recent months has pushed up yields on longer-term government debt that are a key driver of borrowing costs, highlighting how escalating trade disputes could ripple across the economy.
The auto industry is particularly vulnerable to the tariffs, economists and industry observers say. Mexico supplied about 42% of U.S. imports of auto parts last year and Canada almost 13%. A 25% tariff on those parts, which move across borders several times before final assembly, could immediately hurt automakers' bottom lines.
Large parts of the U.S. inventory of companies such as Volkswagen, Honda Motor, Stellantis, Nissan and General Motors are made in Canada or Mexico, leaving their earnings vulnerable.
In commodity markets, the 10% levy on Canadian crude and other energy supplies isn't as high as Canadian officials feared. Even so, futures contracts for delivery of gasoline and diesel into New York Harbor each rose by more than 2% on Sunday night.
At Valero Energy, executives said Thursday that suddenly higher crude costs could force it to curtail output at its U.S. refineries. The fuelmaking giant's facilities are largely concentrated on the Gulf Coast, where refiners could import more crude from other countries.
But Midwestern fuelmakers and consumers, who are reliant on shipments from Canada, could end up having to eat more of the tariff's ultimate costs.
"And then we'll just have to see how long it lasts," Valero Chief Executive Lane Riggs told analysts on an earnings call.
The tariffs will also raise the break-even manufacturing cost at Canadian sawmills by 25% and likely prompt curtailments and closures that will drive up prices in the U.S., said Stinson Dean, a Colorado lumber broker who in anticipation filled his warehouses with more wood than he would otherwise.
"It's going to make a vast swath of Canadian production unbuyable overnight," he said. "Whatever lumber is available for sale today, I'm confident there will be less available for sale 90 days from now."
Write to David Uberti at david.uberti@wsj.com and Ryan Dezember at ryan.dezember@wsj.com
(END) Dow Jones Newswires
February 02, 2025 19:57 ET (00:57 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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