The S&P 500, a key US stock market index, closed in correction territory on Thursday as the volatility of Donald Trump’s trade wars rattled investors.
The index closed more than 10% down from its 19 February peak as Wall Street approaches the end of a second week of pressure.
The technology-focused Nasdaq Composite also closed in correction last Thursday, while the Dow is over 9% down from its peak in December.
On Thursday, after Canadian and EU leaders hit back on American tariffs on steel and aluminum imports, the US president threatened a new 200% tariff on European alcohol, in response to a 50% EU tariff on American bourbon imports.
“This will be great for the Wine and Champagne businesses in the US,” Trump wrote on Truth Social.
It was the latest in the back-and-forth between the US and its key trading partners after a 25% US tariff on all steel and aluminum imports went into effect Wednesday. In response, Canada and the EU have put tariffs on American exports worth a total of over $40bn goods.
Canadian and European leaders have vowed to not back down to Trump, even as he promises to slap on even more tariffs in response to any pushback. “We will not give in to threats,” said Laurent Saint-Martin, France’s foreign trade minister. “Donald Trump is escalating the trade war he chose to unleash.”
The administration has shown it is willing to back down in some instances, at least temporarily. On Tuesday, Trump reversed plans to double the tariff on steel and aluminum imports from Canada to 50% after Ontario’s premier dropped plans to place tariffs on electricity exports to the US. Last week, Trump delayed the 25% tariffs he planned to put on all Mexican and Canadian imports until the start of April.
Still, Trump and those within his administration have played down concerns about the lasting impacts the tariffs will have on the US economy. US treasury secretary Scott Bessent told CNBC on Thursday that the administration was focused on the “long-term gains in the market and long-term gains for the American people”.
“I’m not concerned about a little bit of volatility over three weeks,” Bessent said.
The US stock market saw a brief moment of reprieve on Wednesday after February’s inflation report showed that price increases weren’t as bad as expected. But stocks started to drop again after Canada and the EU placed tariffs on American exports.
Amid uncertainty around Trump’s trade policies, officials with the US Federal Reserve are expected to hold interest rates steady at their upcoming meeting next week, which is unlikely to improve sentiment on Wall Street.
