The Tariffs Impact — Evening Brief – 02.03.25
President Donald Trump officially imposed new tariffs on Saturday, implementing 25% tariffs on all goods from Canada and Mexico (with Mexican tariffs delayed for a month), an additional 10% tariff on all imports from China and a plan to impose a 10% tariff on the European Union.
In response, Canada and Mexico have announced plans for retaliatory tariffs on U.S. goods. Canadian Prime Minister Justin Trudeau declared immediate 25% tariffs on $155 billion worth of American exports, with more tariffs to follow. Mexican President Claudia Sheinbaum stated that Mexico will impose both tariff and non-tariff measures, though specific details are yet to be disclosed.
The U.S. imports approximately $466 billion worth of goods from Mexico and $377 billion from Canada annually. In 2024, Canada supplied 75% of U.S. crude oil imports, highlighting the significance of trade between the nations.
Trump’s tariffs mark the most significant protectionist action by a U.S. president in nearly a century, influencing inflation, geopolitics, and economic growth. Goldman Sachs strategists have cautioned that U.S. stocks could fall by 5% due to diminished corporate earnings, while RBC suggests the decline could range from 5% to 10%.
David Kostin, chief U.S. equity strategist at Goldman Sachs, stated in a note that for every five-percentage-point increase in the U.S. tariff rate, the S&P 500 Earnings-Per-Share (EPS) would decline by 1% to 2%. He added that a sustained 25% tariff on imports from Canada and Mexico would raise the effective U.S. tariff rate by seven percentage points, from the current 3%. This increase would result in a 0.7% rise in U.S. core PCE prices and a 0.4% decline in GDP.
“If sustained, the tariffs announced this weekend would reduce our S&P 500 EPS forecast by roughly 2% to 3%, not taking into account any additional impact from major financial conditions tightening or a larger-than-expected effect of policy uncertainty on corporate or consumer behavior,” Kostin wrote.
Investors worry that U.S. tariffs will lead companies to raise prices, accelerating inflation and prompting consumer spending cutbacks. According to a Bloomberg Economics analysis, the tariff impact could reduce U.S. economic growth by 1.2% and increase the core personal consumption expenditures (PCE) price index by 0.7%.
“We doubt that many companies will be able to avoid the impact of tariffs,” said Kathleen Brooks, research director at XTB Ltd. “Their actual implementation and the retaliatory tariffs that followed felt like crossing the Rubicon.”
Industry executives have pushed President Trump to reconsider the tariffs, citing potential economic hardship. Organizations such as the Aluminum Association and the United Steelworkers have highlighted the harmful effects on American jobs and manufacturers. Meanwhile, the National Association of Home Builders and the National Retail Federation warn that tariffs will drive up building and consumer expenses.