US stocks slumped on Friday after President Donald Trump opened another front in the trade war.
The Dow declined 300 points, or 1.2%, on Friday morning following Trump’s threat to impose tariffs on Mexico. The S&P 500 fell 1.2% and the Nasdaq lost 1.3%
Wall Street was already under heavy pressure in recent weeks due to fears about the escalating trade battle with China.
Trump’s tariff threat on Thursday evening against Mexico, one of America’s largest trading partners, only amplifies investor worries about how trade tensions will disrupt business and slow global economic growth.
“This is just the latest worry to put on the fire for investors,” Ryan Detrick, senior market strategist at LPL Financial, wrote in a note to clients. “The big question at the end of the day though is can we really fight two trade wars at the same time?”
Auto makers, which rely on Mexico as a vital part of their supply chain, retreated. Fiat Chrysler lost 5%, while General Motors declined 4% and Ford lost 3%.
Trump said the United States will impose a 5% tariff on all Mexican imports starting on June 10, as a punishment for illegal immigrants crossing the Mexican border into the United States. The White House indicated the tariff would increase by increments of 5 percentage points each month until it reaches 25% in October.
Some analysts expressed alarm that Trump is imposing tariffs in response to immigration problems, not economic or trade ones.
“Tariffs can be thrown around as an economic bomb for anything now,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note to clients. “Global growth rates will only continue to suffer.”
The tariffs on Mexico will be “highly disruptive,” Goldman Sachs analyst Alec Phillips wrote in a note to investors Friday. The threat sent the Mexican peso plunging more than 3% against the US dollar.
Many US companies — including Ford and Walmart — rely on the country as a central part of their supply chains.
The country is also a regional manufacturing hub for Japanese, South Korean and German automakers that assemble cars in Mexico and ship many of them to the United States. Shares in Mazda and plunged more than 7%, while losses for Toyota, Honda, Nissan and Volkswagen reached 3% or more.
The broadside comes at a delicate time in global financial markets.
The Dow is on track to close lower this week, for the sixth week in a row. That would be the worst losing streak since the summer of 2011. With one trading session left, the Dow has fallen nearly 5.4% in May. The last time stocks fell in May was in 2012, when the Dow fell 6.2%. This has been the worst month since December, when the Dow fell about 8.7%
US stocks have slumped and bond yields have plunged in part because of worries about the escalating trade war between the United States and China. Investors fear the tit-for-tat tariffs — and threats of non-tariff retaliation — will slow economic growth, dent consumer confidence and derail business investment.
Imposing tariffs on Mexico may only exacerbate those trade concerns. The US Chamber of Commerce has estimated that about 6 million US jobs depend on trade with Mexico.