U.S. President Donald Trump further escalated a trade war on Wednesday by announcing he would impose reciprocal tariffs to match duties put on U.S. goods by other countries.
Rates for China would be set at 34% for China, while the European Union and Japan would face 20% and 24%, respectively. Canada and Mexico, which Mr. Trump has already subjected to a series of import taxes, were exempted from the new measures. But other tariffs on North American trade will remain in place, including a 25-per-cent levy on foreign-made vehicles that will come into effect today.
Market reaction has been swift, harsh and far reaching. The S&P 500 opened down about 3% this morning, and the S&P/TSX Composite Index 2.2%. Investors dashed to the relative safety of U.S. Treasuries, which pushed down the value of the U.S. dollar, including against the loonie.
Here’s how market strategists, money managers and economists are reacting:
DHAVAL JOSHI, CHIEF STRATEGIST, BCA RESEARCH, LONDON
“The sell-off has been concentrated in AI stocks. The connection between the stock market sell-off and tariffs is not direct. Because if it was a direct connection, then you know, for example, retailers should be doing really badly. So what this is telling me is that this is like a sort of excuse or a catalyst for selling stocks which are really expensive. It was an expensive part of the market and it just needed a catalyst for the sell-off to start and that’s what’s happened. Even though there’s no direct connection.”
LORI CALVASINA, HEAD OF U.S. EQUITY STRATEGY RESEARCH, RBC CAPITAL MARKETS
“We confess that we were feeling better about the ability of the S&P 500 to defend its mid-March low coming into Wednesday, only to have that glimmer of optimism dissipate again on Wednesday evening. Like most analysts and strategists, we’ll be digesting the implications of the newly announced reciprocal tariffs in the coming days. For now, we reiterate our view that if the S&P 500 breaks meaningfully below the mid-March 2025 low, we think it’s likely the index will fall into the 4,900-5,300 range for a “growth scare” drawdown of 14-20% from the February 2025 peak, similar to the growth scare drawdowns of 2010, 2011, 2015-2016, and 2018. If that occurs, the “bear case” that we mapped out several weeks ago of 5,550 at year-end 2025 may end up being a much more appropriate year-end price target for the S&P 500 than our current “base case” target of 6,200.”
JOHN HIGGINS, CHIEF MARKET STRATEGIST, CAPITAL ECONOMICS
“We are significantly downgrading our end-2025 forecast for the S&P 500 for two key reasons. The first is yesterday’s announcement of greater tariffs on US imports than we had assumed. In such circumstances, we no longer think the economic backdrop will be sufficiently conducive to a rally in equities. The second is a recent shift in the AI narrative, which has shaken our conviction that big-tech will drive up the index.”
“Our previous end-2025 forecast for the S&P 500 was predicated on an AI bubble inflating against the backdrop of a healthy economy. We were largely right about that until early this year. But in our view, the AI narrative has become less clear-cut while the economic backdrop has become more challenging. The upshot is that we now project that the S&P 500 will end this year at 5,500.”
“This is roughly 10% below its closing peak on 19th February and not far from where it may open today after some initial fall-out from the tariff news. That would be consistent with a price to forecast twelve months EPS ratio of around 18, based on analysts’ current implied projection for FTM EPS of ~$305 (which could, of course, change in the meantime). We then forecast a ~11% gain in in 2026, to 6,000, and a ~8% increase in 2027, to 6,500.”
“Finally, since our new S&P 500 forecasts now incorporate a neutral view of US big-tech, this is no longer a reason for us to project either an outperformance by the US stock market (vis-à-vis stock markets elsewhere) this year as an AI bubble inflates or an underperformance when an AI bubble bursts.”
STEPHEN BROWN, DEPUTY CHIEF NORTH AMERICA ECONOMIST, CAPITAL ECONOMICS
“US tariffs on imports from Canada will be much lower than the range of between 15% and 20% that we feared, and which underscored our recent call that the economy would fall into recession. Canada has instead now unexpectedly gained a competitive advantage, given the US has imposed higher tariffs on most other countries. Exports are therefore unlikely to fall by as much as we pencilled in.”
“While we will revise our forecasts to assume a recession is avoided, the outlook remains gloomy. Consumer and business confidence has plunged and is unlikely to recover overnight simply because tariffs are, for now, relatively low. The larger vehicle tariffs will be hugely disruptive for that sector, particularly given the threat to eventually include vehicle parts. Accordingly, consumption and investment will struggle, pushing quarterly GDP growth below 1% annualised in the second half of the year.”
“The Bank of Canada’s job now looks easier. It seems unlikely that the Canadian government will follow through with its next planned tranche of 25% tariffs on $155bn of imports from the US. If tariffs remain on the $60bn of imports already in effect, then that would imply a rise in Canada’s import-weighted tariff rate of less than 2%-points this year, rather than the 7%-point jump we built into our prior forecasts. Moreover, it is unlikely that the loonie will weaken to US$0.67 as we factored in. The upshot is that, rather than rising to more than 3% by the end of the year, headline inflation should finish the year closer to 2% (partly thanks to the scrapping of the carbon tax from this month).”
“Those diminished inflation risks mean we are not minded to change our policy rate forecasts despite the slightly better economic outlook. If GDP growth slows below its potential rate as we expect, then there will still be good reason for the Bank to cut its policy rate below its neutral range estimate, of between 2.25% to 3.25%. Accordingly, we still expect three more 25bp interest rate cuts to take the policy rate to 2.0%, although our thinking now is that those will come at every other meeting rather than sequentially. In other words, the Bank will keep interest rates on hold at its meeting this month.”
STEFANE MARION and MATTHIEU ARSENEAU, ECONOMISTS WITH NATIONAL BANK FINANCIAL
“While it is impossible to calculate an exact figure—given the unknown share of USMCA-compliant versus non-compliant goods by product category, as well as the proportion of U.S.-made components in Canadian-assembled vehicles—we estimate that, under the current measures, the effective trade-weighted tariff rate on Canadian exports remains below 5%. However, this short-term relief may be fleeting. The breadth and severity of tariffs imposed on other countries significantly heighten the risk of stagflation in the United States and raise the likelihood of a global economic slowdown or recession. Unless the U.S. administration reverses course, the Canadian economy remains on track for a noticeable deceleration throughout the remainder of 2025.”
DEREK HOLT, HEAD OF CAPITAL MARKETS ECONOMICS, AND JOHN McNALLY, SENIOR ADVISOR, AT SCOTIABANK
“We estimate Canada and Mexico’s effective tariff rates for exports to the world are 3.3% and 4.2% respectively. Effective tariffs on exports to the US are 3.7% and 5.1% for the two countries. Given what other countries faced (particularly the 54% tariff rate now faced by Chinese goods exporters), this outcome is slightly more positive than worst case scenarios might have anticipated.”
“The executive order also introduced something new. If the fentanyl/migration tariffs are ever cancelled, it states all non-USMCA compliant goods would face a 12% tariff. This potential offramp offers (in theory) some certainty around future direction, since there is now a clear floor that illustrates what could replace the USMCA if negotiations falter. It also confirms a worry, which is that a return to tariff-free trade is highly unlikely at any point in the next four years. Secondly, both countries are trade- and commodity-dependent economies. The weaker US growth and negative impact on commodities through global growth will be a dampener.”
ROYCE MENDES, MANAGING DIRECTOR AND HEAD OF MACRO STRATEGY AT DESJARDINS CAPITAL MARKETS
“After being hit hard earlier in the year, Canada and Mexico have seemingly received at least some short term advantages over other trading partners. Should producers in both countries move to make more of their goods USMCA-compliant and the governments work towards resolutions for border frictions, there is scope for Canada and Mexico to take market share from other US trading partners. That reinforces our view that the Bank of Canada will not cut rates later this month unless the market selloff is sustained.”
“Despite the reprieve given to the two North American economies, this is a very significant structural shift in policy. The US effective tariff rate could be headed to its highest level in a century. US financial markets are clearly concerned about the magnitude and scope of today’s announcement. Furthermore, there remain unresolved trade irritants with both Canada and Mexico that may be hard to overcome. Markets may, however, cling on to the hope that today’s announcement is just the starting point for bilateral negotiations with individual trading partners and tariff rates will fall if foreign trade barriers decline. Whether or not that theory proves true will be key to the trajectory of markets in the coming weeks.”
TU NGUYEN, ECONOMIST WITH NATIONAL ASSURANCE, TAX AND CONSULTANCY FIRM RSM CANADA
“For Canada, the absence of new tariff announcements on April 2 is a small consolation prize as the U.S. imposed sweeping tariffs on most countries around the world, from at least 10 per cent to as high as just below 50 per cent. This puts the effective tariff rates from the U.S. at 23 per cent, higher than the average of 20 per cent under the Smoot-Hawley Tariff Act from the era of the Great Depression a century ago. Given the lack of new U.S. tariffs on Canadian exports and Canada’s underlying inflationary pressures, the Bank of Canada will likely hold the policy rate at its next meeting in April.”
“If recent executive orders citing border security are withdrawn, Canada and Mexico will face 12 per cent tariffs on goods not covered under CUSMA, which is on par with most of the world. Canada’s response remains to be seen. However, it will likely be less forceful than the planned retaliatory tariffs of $125 million now that Canada is at a competitive advantage compared to other U.S. trade partners.”
DAVID ROSENBERG, FOUNDER OF ROSENBERG RESEARCH
“So, President Trump was indeed “very kind” and went with a baseline tariff rate of 10%, but with wide disparities (34% on China, 32% on Taiwan, 26% on India, 25% on Korea, 24% on Japan, 20% on the EU, and 10% on the U.K.), which was at the low end of expectations (it was amusing to hear him define “reciprocal” to everyone). But the average net effective tariff rate has shot up to over 20% from 2.5% in the biggest shock since 1930.”
“How these numbers were calculated was highly bizarre, as they were based not on other tariff rates at all, but on export/import ratios. That is what the White House did… it estimated the tariff hits by taking the trade deficit that the U.S. runs with individual countries and dividing that by the value of their exports into America. This is not being “kind,” it is being “weird,” but it plays to the MAGA base very well. And the starting point is on April 9th, seemingly an attempt to bring the affected countries to the negotiating table. Trade policy on the fly.”
BMO ECONOMIST SAL GUATIERI
“We estimate that the weighted average reciprocal duties on U.S. imports at roughly 21%. This, combined with other sector duties (including about 20% for motor vehicles after excluding U.S. content, and 25% on steel and aluminum) and the 20% duty on China, will raise the weighted average tariff rate on U.S. imports by about 23 ppts. That’s more than double the rate we had assumed in our current forecast, implying room for a downgrade to our U.S. growth forecast. We had already reduced U.S. real GDP growth by just over half a percentage point to 1.7% in 2025 based on previous tariff announcements. We will also need to raise our inflation call, again, after lifting it by about 0.7 ppts this year. The cost of electronic items from Asia, in particular, is about to spike. The Fed will have a challenging time weighing the polar impacts of tariffs on growth and inflation, and will likely bide its time, before ultimately ceding to the weaker growth path and resuming rate cuts in the fall.”
“At the moment, it seems, Canada and Mexico are spared reciprocal tariffs. Both nations will continue to pay duties under the IEEPA order concerning border security issues (fentanyl and migration). That is, 25% on non-USMCA compliant goods and no tariff on USMCA compliant goods (which for Canada could be the vast majority of products once the necessary paperwork is completed). Energy products, critical minerals, and potash from Canada will continue to pay a 10% duty. If these duties are withdrawn, then USMCA compliant goods will continue to pay no duty while non-USMCA compliant goods would pay a 12% reciprocal tariff. For Canada, we estimate that the weighted average tariff on shipments to the U.S. could rise by only around 7 ppts. That’s based on an estimated 12.5% duty on motor vehicles (to reflect U.S. content, though parts could eventually be a different story), and other sectoral duties. That’s much lighter than assumed in our forecast, suggesting a possible upgrade to the outlook.”
CIBC ECONOMISTS ANDREW GRANTHAN AND ALI JAFFERY
“Using our modelling framework from previous research that accounts for direct and indirect effects, those sector-specific tariffs could leave Canadian GDP 1.5% to 2.0% lower than our pre-tariff baseline and employment lower by 125K. Those numbers don’t account government retaliation, which could make them slightly higher, or for how much monetary and fiscal policy try to mitigate some of the hurt. While we averted some of the worst case scenarios today, we could still see a negative quarter in Q2 due to the impact of uncertainty on business investment and a pull-back in exports following the surge seen in Q1 as companies looked to front-run tariffs. Canada’s better fortune comes at the expense of other trading nations however, and could also end up biting us by slowing US and global growth, weighing on demand for Canadian goods even without further tariffs. The effective tariff rate on US imports is now close to 20% based on the selected table the President showed today and the North American exemptions. That is the biggest news of today, and represents an astronomical increase that could reduce GDP over the medium-term by around 1 to 2% through the income channel.”
ROYAL BANK ECONOMISTS NATHAN JANZEN AND CLAIRE FAN
“Broadly speaking, we have argued before that U.S. buyers will have difficulty finding domestically produced alternatives to imports. A wave of retirements and immigration cutbacks limit the amount that American production can increase in the near-term, and capital investments to “reshore” manufacturing production will take years and billions.”
“Given those constraints in the near-term to U.S. domestic production capacity, the impact of tariffs depends largely on whether alternative, cheaper import markets are available. Canada’s position compared to other countries on import tariffs looks substantially better today than it did yesterday. But, there’s also the looming threat of whether the total tariffs imposed are large enough to significantly weaken U.S. economic growth and shrink the size of the total import pie. Furthermore, even though, most of Canada’s trade is directly with the U.S., supply chain disruptions after pandemic lockdowns eased is a reminder of how disruptions globally can spill over to Canadian production and price growth.”
TD ECONOMISTS BEATA CARANCI, JAMES ORLANDO, THOMAS FELTMATE AND ANDREW HENCIC
“Today’s announcement will raise the U.S. effective tariff rate to over 20%, the highest level since the early-1940′s and notably above the 14% assumed in our Quarterly Economic Forecast. At this point, the big unknown is duration. Our forecast assumes that the peak tariff rate remains in-effect for just six-months, after which most countries/regions (except for China) see some reprieve. Should the tariffs remain elevated for longer, the odds of U.S. economic stagnation rises. Likewise, inflation is at risk of approaching 4% or more.”
“Heightened trade uncertainty has already led consumers to tap the brakes, with households increasingly worried about inflation, employment, and income prospects. Consumer spending is tracking a paltry 0.5% in the first quarter, after expanding by a robust 3.6% annualized in H2-2024.”
“Our baseline assumed all levels of Canadian government would spend an extra 1% of GDP in 2025 to support growth. That now appears to be on the low end. Based on the provincial budgets released to date, stimulus measures have already totaled 0.3% of GDP. Ontario is expected to release its budget sometime in mid-April, potentially bringing the cumulative fiscal spend to 1% of GDP. Adding Federal fiscal measures could double this figure. Although this will take the sting out of tariffs, it won’t prevent near-term economic stagnation as companies and labour markets absorb the policy shock. Canada will need to brace for a long period of economic restructuring. Even if the tariffs are removed or lessened in short order, Canadians cannot “unsee” the past three months. Returning to a place of commitment and trust would be unrealistic.”
UBS STRATEGISTS LED BY BHANU BAWEJA
“Trump’s proposals are likely to raise the weighted average tariffs on US imports from 2.5% as of end 2024 to 24%, levels not seen since the 1920s. Both the magnitude of ‘reciprocal’ tariffs imposed per country and the set of countries they were imposed on were larger than many had reasonably anticipated. That they come on top of a 10pc universal tariff is an added shock. This has the potential to considerably worsen the growth inflation mix in the US and the global economy in the coming year. Our US econ team believes it’s plausible US’ 2025 real GDP could be compromised by 1.5-2pp and inflation could rise to close to 5% if these tariffs are not reversed soon. The magnitude of damage they could cause to the US economy makes one’s rational mind regard the possibility of them sticking as low.”
BEN MAY, DIRECTOR OF GLOBAL MACRO RESEARCH, CAPITAL ECONOMICS
“The implementation of the US ‘Liberation Day’ tariff hikes will have a huge impact on individual sectors and firms and will further dampen sentiment. However, our initial assessment suggests a global recession will likely be avoided. The proposed discounted reciprocal tariff rates suggest even higher US tariff rates than assumed in our previous severe and unphased blanket tariff scenario of 45% on China and 15% on others. In two or three years’ time, US imports could fall by around 15% due to discounted reciprocal tariff hikes set to take effect within a week... This could reduce global GDP by up to 0.5ppts this year and 1ppt in 2026. But the impacts could be more significant for economies whose exports represent a large share of their GDP. Any hopes that the new tariff plan will eliminate uncertainty seem optimistic.”
KASPER ELMGREEN, CIO OF FIXED INCOME AND EQUITIES, NORDEA ASSET MANAGEMENT, COPENHAGEN:
“These tariffs are worse than expected, as shown by equities trading significantly down and gold and bonds trading up. Clearly, the reading here is that the recession risk is on the rise. This is a very clear signal, if anyone should be uncertain that globalization has reversed, this is the signifier. We were in a period of high policy uncertainty, this is also why the initial excitement after the election abated so much. This announcement does not reduce uncertainty, but it is just step one in a process. We should expect now to see countermeasures and retaliations.”
“One potential positive outcome is this is a shock to the system and it stabilizes, this is a negotiation, a tactic to reset what is seen as an unfair system. That could create some kind of certainty. The negative view is that this does not create any certainty and there is a prolonged period of negotiations, hitting growth.”
MAARTJE WIJFFELAARS, SENIOR ECONOMIST AT RABOBANK, EINDHOVEN:
“The tariffs on EU goods soften EU growth and raises EU inflation somewhat, but won’t to push the EU in a recession. What is important for the EU outlook is what will happen due to the broadscale tariffs with overall US demand, global demand and supply chains, how the EU will respond, and obviously investment decisions. The latter are likely to be delayed due to the uncertainty, but the extent to which is impossible to predict. We know from previous crises episodes that investments can shrink quickly – and the same goes for recovery by the way.”
LYNN SONG, CHIEF ECONOMIST FOR GREATER CHINA, ING, HONG KONG
“The tariff hike was larger than what most market participants were expecting, so the initial market is likely going to be a continuation of risk off sentiment, reflecting weaker growth expectations on a macro level as well as the individually impacted companies on a micro level.”
“However, lost in the initial panic are several key things to consider. First, the U.S. has signalled that these reciprocal tariffs will mark a cap unless countries choose to retaliate, and they appear to be encouraging countries to come and negotiate to lower the rates. Second, a broad based global tariff means that substitution products are less available.”
“It feels like this time around US importers could end up bearing more of the burden from tariffs rather than expecting exporters to make up for the gap by cutting margins.”
WANG ZHUO, PARTNER, ZHOUZHU INVESTMENT, SHANGHAI
“Trump’s new tariff measures are undoubtedly unwise, as fair trade is not realized through so-called reciprocal taxes, but is determined by comparative advantage.”
“The higher tariffs will dent U.S. efforts to reduce inflation, so it’s possible the U.S. will witness stagflation. The slump in U.S. stocks is a sign that investors are voting with their feet.”
“The Chinese market is fully prepared psychologically, so is resilient. What’s more import for China now, is to pay attention to domestic macro policies and data, and see when our CPI data can improve and whether it’s sustainable.”
NIGEL GREEN, CEO, DEVERE GROUP, DUBAI, UAE
“This is how you sabotage the world’s economic engine while claiming to supercharge it. It’s a seismic day for global trade.”
“Tariffs are taxes, plain and simple, and American consumers will bear the brunt. When businesses don’t know what trade will look like next quarter, they stop hiring, stop investing, and freeze plans. That ripples through to consumers. This chilling effect is how recessions begin.”
“The dollar’s dominance is also no longer a sure thing. America’s credibility is on the line. With the dollar as the global reserve currency, any whiff of unpredictability or politicized policy makes global investors nervous. That trust is hard-earned and easily lost.”
SCOTT WREN, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST LOUIS, MISSOURI
“We’ve wanted to be invested in the U.S. relative to international and that’s not going to change. We like large cap... Now we’re also overweight midcaps… On this pullback here, our outlook is not wildly positive but it’s positive. So we’re trying to gain some cyclical exposure here. We’re not trying to hide. We don’t want to get defensive. We want to take advantage of stock pullbacks to buy stocks and play what we perceive to be a better second half.”
With files from Reuters