The tariff storm is far from over, unfortunately. President Trump and some of his key officials used the weekend to dig in their heels on his ‘Liberation day’ tariffs, and equity markets are falling heavily again today. Falls of this speed and scale can become self-reinforcing. They can also lead to unanticipated consequences. The biggest risk is that the market dislocation more generally leads to a rise in credit risks that either causes something in the financial market plumbing to freeze or something in the system to “break”. This has increased in recent days, but is still relatively low.

The S&P 500 is currently down 9.3% from its recent high. It's important to remember that market volatility is normal. Since 1980, the S&P 500 has typically seen 3 to 4 pullbacks of over 5%, one pullback of over 10%, and an average maximum intra-year drawdown of 13% each year. Despite these fluctuations, the S&P 500 has averaged an annual gain of 12.3% over the same period. This indicates that while market downturns can be unsettling, staying invested and avoiding panic selling has historically been beneficial.

President Trump has proposed sweeping tariffs for America’s top three trading partners—Mexico, Canada, and China. These countries account for $1.4 trillion of imports into the US, equating to 45% of all US imports. The US is placing a 25% tariff on all imports from Canada, except energy commodities at 10%. For imports from Mexico, the rate will be 25%, and for imports from China, it will be 10%. These measures were set to go into place on February 4th—however, the tariff on Mexico has been delayed by one month as Mexico agreed to reinforce the border against drug trafficking with 10,000 National Guard members. Uncertainty remains on the tariffs on Canada and China. President Trump is expected to speak with Canada’s Prime Minister Trudeau today at 3 PM.