So President Donald Trump meant what he said all along and tariffs weren't an empty threat.

The realization finally hit investors Monday and the fallout was brutal. The S&P 500 had its worst day of the year Monday and has now fallen 2.5% since Trump returned to the White House in January.

The index's gains since the election in November are just about intact but it's hard to see them lasting much longer if the levies keep coming. Berkshire Hathaway CEO Warren Buffett is concerned, too -- he said Sunday that tariffs are an act of war and could cause inflation.

The market's conviction that Trump's trade strategy was just one big -- but ultimately harmless -- game of chicken has suddenly evaporated. The 25% tariffs on Canada and Mexico, and a further 10% on China spooked investors but the ramifications don't end there.

All the president's other threats must now be seen in a new, more serious, light -- including his promise to target the European Union next. Stocks across the Atlantic have marched to record highs but were selling off Tuesday. Trump's decision to pause all military aid to Ukraine made sentiment even worse -- another seismic global development for those bothering to keep count at this point.

Yet, after underplaying the risk for so long, there are signs traders still don't fully believe what's in front of them. The Canadian dollar and Mexican peso fell Monday but are still trading significantly higher than the lows they reached early last month, which suggests at least some optimism.

Maybe the market thinks the 25% levies will be short-lived or it's just peak stubbornness at this point and a refusal to accept Wall Street might have been wrong.

Regardless, it leaves stocks exposed to further shocks. The world is changing rapidly and the market is playing catch up.

-- Callum Keown

***

Levies Begin on Imports From Canada, Mexico, China

President Donald Trump's 25% tariffs on goods imported from Canada and Mexico go into effect today, in addition to an increase of 10% on tariffs for imports from China. Trump dashed hopes for a reprieve, at least on Canada and Mexico levies, saying they had not done enough to stop flows of fentanyl across the border.

   -- Trump also teased that more tariffs are planned. He said American farmers 
      should prepare to make more agricultural products for sale in the U.S., 
      because tariffs on external products start April 2. Those are part of 
      Trump's reciprocal tariffs on nations that impose levies on U.S. imports. 
 
   -- Within hours China and Canada announced retaliatory measures. China 
      raised tariffs on food and other farm products, as well as adding to 
      export restrictions on American companies. It also filed a suit with the 
      World Trade Organization. Canada increased tariffs on nearly $100 billion 
      U.S. imports. 
 
   -- The reciprocal tariffs are coming in early April, but more are expected 
      next week, when the U.S. is set to raise tariffs on aluminum imports to 
      25% and restore steel import tariffs of 25%. Both are expected to cause 
      immediate effects on auto makers, including raising prices for consumers. 
 
   -- Of the new passenger vehicles sold in the U.S. last year, one quarter of 
      them were assembled in Canada or Mexico, The Wall Street Journal 
      reported. Auto makers that especially rely on operations in those two 
      countries include Germany's Volkswagen, Japan's Honda, and U.S.-based 
      General Motors. 

What's Next: Auto executives met with Trump administration officials last week, but unlike in previous meetings, Commerce Secretary Howard Lutnick didn't mention a potential exemption for cars to comply with a North American trade agreement renegotiated during Trump's first term, the Journal reported.

-- Janet H. Cho

***

OPEC Will Raise Output from April. Oil Prices Are Falling.

The Organization of the Petroleum Exporting Countries and its allies expect to start raising output next month, something that could push the market into oversupply this year. Oil demand is rising too slowly to sop up all of the extra supply that could come onto the market over the next several months.

   -- The group announced the decision Monday after meeting virtually. But the 
      plans confirm their December agreement to raise output starting in April. 
      The group has been withholding some output since the pandemic to support 
      prices and is still holding more than 5% of global production off the 
      market. 
 
   -- Eight members of OPEC and its allies will begin restoring production at a 
      rate of about 120,000 daily barrels a month, and will continue adding 
      production for 18 months, aiming to add 2.2 million barrels a day next 
      year. 
 
   -- That would be on top of the production boost coming from other areas of 
      the world, such as the U.S. and Brazil. The U.S. Energy Information 
      Administration has forecast the global oil market will be in oversupply 
      by the second quarter and remain there through at least 2026. 
 
   -- The price of West Texas Intermediate, the U.S. benchmark, dropped nearly 
      2% to just above $68 a barrel. It's down more than 20% since its 52-week 
      high reached in April 2024. Brent crude, the international standard, is 
      down 4% this year at just under $72 a barrel. 

What's Next: OPEC and countries outside the alliance may have to fight for market share in the next few years because oil demand isn't growing fast enough for everyone to raise production. Bank of America strategist Francisco Blanch says oil use may struggle to grow above 1% annually through 2030.

-- Avi Salzman

***

TSMC Latest Tech Giant to Pledge Billions for U.S. Investment

Taiwan Semiconductor Manufacturing plans to spend $100 billion over the next four years to build three new chip plants, two chip-packaging plants, and a research and development center in Arizona. That brings its total investment in U.S. production since 2020 to $165 billion.

   -- TSMC CEO C.C. Wei announced the move at the White House, amid efforts by 
      the Trump administration to boost domestic chip manufacturing. TSMC 
      intends to make the investment over the next four years. 
 
   -- TSMC, founded in 1987, is also reportedly thinking of taking a stake in 
      Intel's struggling foundry business or buying the division outright. It 
      announced its first U.S. factory in Phoenix in May 2020, and is building 
      two more semiconductor manufacturing facilities there. 
 
   -- As the world's largest contract chip maker, whose chips power everything 
      from artificial intelligence to smartphones to automobiles, TSMC 
      currently produces its most advanced chips exclusively in Taiwan. 
 
   -- TSMC is the latest tech giant to reveal plans for billions of dollars of 
      spending on U.S. manufacturing capacity. Recent pledges have also come 
      from Apple, Oracle, and Japan's SoftBank. 

What's Next: TSMC has begun receiving the $6.6 billion in grants it was awarded under the Biden administration's Chips & Science Act to boost domestic chip manufacturing. Trump last month said he was considering tariffs of 25% or more on semiconductor imports.

-- Mackenzie Tatananni and Janet H. Cho

***

Walgreens Nears $10 Billion Take-Private Deal

Walgreens Boots Alliance and private-equity firm Sycamore Partners are nearing a deal for the drugstore chain to be taken private for a price of between $11.30 and $11.40 a share in cash, or roughly $10 billion.

   -- A deal could be reached as soon as Thursday and may include extra bonuses 
      for shareholders if specific targets are met after any merger, The Wall 
      Street Journal reported late Monday, citing people familiar with the 
      matter. Walgreens didn't immediately respond to a request for comment. 
 
   -- Under current CEO Tim Wentworth, it has scaled back healthcare operations 
      and said it would close unprofitable branches. The company does not only 
      operate the Walgreens pharmacy chain but also healthcare provider 
      VillageMD and U.K. pharmacy chain Boots. 
 
   -- Walgreens stock peaked a decade ago at close to $100 a share but has been 
      on a downward trend since. Coming into Tuesday trading, shares were 
      closer to $10 and have fallen 51% over the past 12 months. 

What's Next: A takeover could mean a break up of the company, shares of which have been listed since 1927. If the deal is completed, Sycamore is expected to maintain the U.S. retail business but sell or take public the remaining parts of the company, according to the Journal report.

-- Elsa Ohlen

***

A Crypto Strategic Reserve? There's Reason for Skepticism.

President Donald Trump's goal to create a crypto strategic reserve has a major problem. Any attempt to create such a reserve will most likely require Congress to pass a bill, and Republican-led efforts in red states to create a similar fund already are failing.

   -- Trump raised the idea of a reserve in a social media post on Sunday, 
      sending Bitcoin and other digital currencies soaring. But his executive 
      order in January was more limited in scope and had merely called for a 
      digital asset stockpile, potentially derived from cryptocurrencies seized 
      during law enforcement efforts. 
 
   -- In contrast, a reserve is typically understood to mean the government 
      would actively buy cryptocurrencies. The idea has been rejected in 
      crypto-friendly Wyoming, where a house committee recently rejected a bill 
      that would have allowed the state treasurer to invest around half a 
      billion dollars in Bitcoin. 
 
   -- Other states that have rejected similar bills this year include Montana, 
      South Dakota, North Dakota, and Pennsylvania. Congress would most likely 
      have to pass a bill appropriating funds for a crypto reserve, and there's 

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March 04, 2025 07:12 ET (12:12 GMT)

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