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US stocks declined significantly on Friday, following President Donald Trump’s announcement of a 35% tariff on Canadian imports, effective August 1, citing fentanyl concerns. The Dow Jones Industrial Average fell 276 points (0.6%), the S&P 500 dropped 0.3% to 6,247 points after hitting a record high the previous day, and the Nasdaq Composite traded marginally lower.
This followed a week of mixed performance, with the Dow and S&P 500 on track for weekly losses of 1% and 0.2%, respectively, as investors grappled with heightened trade policy uncertainty.
Immediate Market Response
The tariff news disrupted the recent resilience of US stocks, which had shrugged off earlier 50% tariffs on copper and Brazilian imports. The iShares MSCI Canada ETF fell 0.7% in premarket trading, reflecting pressure on Canadian-linked assets. Safe-haven assets surged, with silver futures hitting a 2011 peak at $39 per ounce and gold rising as investors sought stability amid trade tensions. The 10-year Treasury yield climbed to 4.415%, signaling expectations of inflationary pressures or tighter monetary policy.
Inflationary Concerns
Trump’s proposed 15-20% blanket tariffs on most trading partners, up from the current 10%, raise fears of rising consumer prices. Despite Trump’s dismissal of inflation risks, citing Thursday’s market highs, higher tariffs could increase costs for imported goods, challenging the Federal Reserve’s price stability efforts. The steady US inflation rate of 2.35% in May and core inflation at 2.79% suggest a delicate balance that could be disrupted by supply chain shocks.
Sector-Specific Performance
While US stocks faced broad pressure, some sectors showed resilience. Levi Strauss shares rose 10% after exceeding Q2 expectations and raising its full-year outlook, planning to absorb tariff costs. Energy stocks, like BP, gained 2% in premarket trading despite warnings of Q2 impairments due to lower fuel prices. Technology and crypto-related stocks, buoyed by Bitcoin’s surge to $118,000, also held firm, with Coinbase and MicroStrategy up 1.3% and 3%, respectively.
US-Canada Trade Tensions
The 35% tariff on Canada, with threats of further increases if Canada retaliates, strains the U.S.-Mexico-Canada Agreement (USMCA). Exemptions for USMCA-compliant goods offer temporary relief, but their permanence is uncertain. Canadian Prime Minister Mark Carney emphasized cooperation on fentanyl and trade, aiming for a deal by August 1.
Global Trade Dynamics
Trump’s tariff strategy extends to potential duties on the European Union, India, and Vietnam, which was surprised by a 20% tariff announcement. The EU is nearing a trade deal outline, awaiting US response. These moves signal a protectionist shift, potentially disrupting global supply chains and trade balances.
As US stocks navigate Q2 earnings and upcoming inflation data, tariff-induced volatility is likely to persist. Policymakers should closely monitor inflation indicators, as tariff-driven price hikes could complicate monetary policy. Businesses may adopt cost-absorption or supply chain diversification strategies, as seen with Levi Strauss. Investors are now focusing on resilient sectors like technology, defense (e.g., AeroVironment up 9.5%), and precious metals to weather trade uncertainties.
