Trump’s Trade War with Canada and Mexico Is On, Markets Instantly Tank (Again)

At the beginning of last month, when Trump announced his intention to slap 25 percent tariffs on Canada and Mexico and 20 percent tariffs on China—America’s three biggest trading partners—the markets tanked before reversing thanks to Mexico. I had to rewrite my story that day because the markets made Trump blink, as he announced a one-month pause with Mexico that surely saved some traders’ jobs after Goldman Sachs and J.P. Morgan admitted they didn’t price what Trump said he would do into their models.

Today, when Trump announced that we will be at economic war with our neighbors to the north and south come tomorrow, the markets fell hard again. You can even watch it happen in real time in the bottom right corner with the Dow Jones as the president announces more economic hardship for Americans.

Trump: “Tomorrow, tariffs — 25 percent on Canada and 25 percent on Mexico. And that’ll start.”

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— Aaron Rupar (@atrupar.com) March 3, 2025 at 12:53 PM

Things got ugly after Trump soke. The Dow Jones dropped by as much as 2.5 percent from its open, the S&P 500 was down nearly 3 percent at one point and the Nasdaq was down as much as 3.75 percent. They all bounced back a little in the last trading hours of the day where many shorts were likely closed to make the closing bell look a little less ugly, but the message is loud and clear: this is not bullish news. Literally the opposite.

Crypto, despite Trump’s efforts to bail out the architects of the worst shitcoins ever conceived, is getting a-fucking-nihilated. Bitcoin is down over 8 percent, Ethereum is down 15 percent, while Trump’s holy trinity of stupid bullshit—Solana (20 percent), XRP (18.5 percent) and ADA (23.6 percent)—are all down bad. These are the kinds of days I’ve been worried about while pointing to the CAPE ratio as a metric to describe how expensive these markets are, and how far they could fall and still have valuations in line with their fundamentals.

The largest, most liquid market in the world didn’t fare any better either, with bond yields falling as much as around one percent or more across the board before mean reverting a bit too. The yield curve is still inverted for Treasuries that expire within Trump’s presidency, but now the five year is threatening to join the party and the seven and ten years are not too far behind. All markets everywhere are all saying the same thing: this is bad, very very bad.

Also continuing Trump’s very bad no good day in the economy was the Federal Reserve Bank of Atlanta. They rocked the markets last week by projecting negative GDP growth for the first quarter of 2025, largely due to adjustments in exports and imports due to this trade war, and today the Atlanta Fed is out with an updated estimate that projects negative 2.8 percent GDP growth for the first three months of the year. To give that figure some perspective, I’ve put a red line about where -2.8 percent is on this FRED chart of quarterly GDP percent change going back to the late 1940s.

Fucking yikes, man. I get that there are a lot of weird trade adjustments in that GDP figure tanking, and it’s not quite as bad as it looks, but this projection is still cataclysmic.

The stock market is not the economy, but if you just chart the stock market ahead of the 2008 Great Financial Crisis, you can see how it’s a pretty good forward-looking indicator for the economy when the shit hits the fan. The collapse of the yield curve as the short end inverts is really bad news, as the smartest money in the room is actually flashing bigger warning signals than risk markets are right now. I wrote earlier this year that Trump and Elon are trying to crash the economy, and the bond market knows it, and after last month’s false start and today’s confirmation that the trade war with Canada and Mexico is on, I can add “the entire market” to that assertion.