[New York Stock Market] Two-Day Decline Amid Tariff-Induced Recession Fears... Dow Drops Sharply by 1.55%

Canada and China Announce Immediate Retaliatory Tariffs...
Mexico Signals Countermeasures
Trump Hints at Additional Retaliation Against Canada
Trudeau: "The U.S. Wants Our Economy to Collapse Before a Merger"

The three major indices of the U.S. New York stock market all plunged for the second consecutive day on the 4th (local time). President Donald Trump pushed ahead with tariffs on Mexico, Canada, and China, and as each country hinted at retaliatory measures, fears of a global trade war spread. Investors, worried about the possibility of a tariff-induced economic recession, sold stocks for two consecutive days.

Yonhap News

On that day in the New York stock market, the Dow Jones Industrial Average (Dow) focused on blue-chip stocks closed at 42,520.99, down 670.25 points (1.55%) from the previous trading day. The S&P 500, centered on large-cap stocks, fell 71.57 points (1.22%) to 5,778.15, and the Nasdaq, focused on tech stocks, dropped 65.03 points (0.35%) to 18,285.16.

By individual stocks, General Motors (GM), a U.S. automaker with production bases in Mexico, fell 4.52%. Ford declined 2.93%. Chipotle, a Mexican food chain, slipped 2.14%. Chipotle sources half of its avocados from Mexico, and concerns that tariff increases would reduce profit margins led to heavy selling. Nvidia, a leading AI stock, rose 1.69%, but amid overall investor sentiment contraction, it did not lead to a rebound in major indices.

The U.S. implemented tariffs on Mexico, Canada, and China starting at midnight as President Trump had announced. A 25% tariff, which had been postponed for a month, was imposed on Mexico and Canada, and China’s existing 10% additional tariff was increased by another 10%, raising the total additional tariff rate to 20%. Each country immediately hinted at retaliatory measures. Canada announced it would impose a 25% retaliatory tariff on U.S. imports worth CAD 155 billion (approximately KRW 156 trillion), and tariffs on imports worth CAD 30 billion (approximately KRW 30 trillion) began that day. Canadian Prime Minister Justin Trudeau strongly criticized President Trump’s tariff policy, saying, "What he wants is the complete collapse of the Canadian economy," adding, "That would make it easier for us to be merged." China also plans to implement tariffs of up to 15% on U.S. imports starting on the 10th. Mexico plans to respond with tariff and non-tariff measures on the 9th.

President Trump escalated the situation by threatening to impose additional retaliatory tariffs. On his social media platform Truth Social, he said, "Tell Trudeau of Canada to explain," adding, "If he imposes retaliatory tariffs on the U.S., our reciprocal tariffs will immediately be raised to the same level." This also suggested that the reciprocal tariffs he announced globally on April 2 could be imposed on Canada immediately.

Initially, the market hoped for a last-minute resolution of the tariff negotiations. However, President Trump dismissed the possibility of negotiations the day before and proceeded with the planned "tariff bomb," increasing uncertainty over the global tariff war. Especially, the U.S., Mexico, and Canada have applied mostly tariff-free trade under the United States-Mexico-Canada Agreement (USMCA), a trilateral free trade agreement, and their supply chains are highly integrated, raising the likelihood of significant disruption.

Sam Stovall, Chief Investment Strategist at CFRA Research, called the stock market decline that day a "conditional correction," saying, "It actually depends on one condition, which is how much Trump maintains the tariffs."

Clark Gerenen, Senior Market Strategist at Calvey Investment, said, "It is very uncertain how long the tariffs imposed on Tuesday will be maintained," adding, "We tend to believe this is closer to a negotiation strategy and not the start of a long and tedious mutual trade war." He added, "Investors tend to sell first and ask questions later in such situations."

Moreover, the manufacturing data released the day before was weaker than expected, increasing investors’ concerns about economic contraction. The Institute for Supply Management (ISM) reported that the U.S. Manufacturing Purchasing Managers’ Index (PMI) for February was 50.3, down 0.6 points from the previous month. Although the PMI remains above 50, indicating an expansion phase, it was below the forecast (50.6), showing slower-than-expected growth.

As investors focus on the direction of the Trump-induced tariff war, major employment data will be released consecutively this week. The U.S. Department of Labor will release the February employment report on the 7th. Nonfarm payrolls are expected to have increased by 156,000, exceeding January’s figure of 143,000. Two days earlier, on the 5th, ADP, a private labor market research firm, will release its February nonfarm employment report. Amid the Federal Reserve’s cautious stance on interest rate cuts, labor market conditions, along with inflation, are key economic indicators closely watched by monetary authorities. The Fed’s Beige Book, a report on economic conditions, will also be released on the same day.

U.S. Treasury yields show mixed trends between long-term and short-term bonds. The 10-year U.S. Treasury yield, a global bond yield benchmark, rose 3 basis points (1 bp = 0.01 percentage points) from the previous trading day to 4.21%, while the 2-year Treasury yield, sensitive to monetary policy, fell 4 basis points to 3.93%.