US markets sinking
The S&P 500 (SPY), the Dow Jones Industrial Average Index (DIA), and the NASDAQ Composite (QQQ) have already fallen 1.1%, 1.1%, and 1.2%, respectively, at the opening today after Trump’s tariff salvos in Mexico. The US automakers, particularly, are hard hit by tariffs on Mexico, as they have major production in Mexico. General Motors (GM) and Ford Motor (F) were trading down by 4.0% and 3.5%, respectively.
Fears of recession
The markets are now increasingly worried about the prospects of a recession. There is already increasing evidence that the ongoing US-China trade war is taking its toll on both economies. China (FXI) released its manufacturing PMI data today, which fell into the contraction territory again, a worse outcome than economists expected.
Question on motivations
The market participants are also worried because the latest tariffs on Mexico aren’t motivated by trade imbalances. Investors were already worried that China’s latest threats about a rare earth metals export ban to the US could take the trade war to the next level, jeopardizing growth potential of both the economies.
As reported by CNBC, Commerzbank FX strategist Ulrich Leuchtmann said, “The U.S. trade policy has taken a qualitatively different turn. Using tariffs as a tool for non-economic goals is something which brings a new quality to proceedings.”