Washington | Worries about President Donald Trump's tariffs are hurting US stocks Monday as financial markets worldwide drop on concerns about a potential trade war.

The S&P 500 was down 1.4% in early trading following similar losses for stock markets across Asia and Europe. The Dow Jones Industrial Average was down 435 points, or 1%, as of 9:35 am Eastern time, and the Nasdaq composite was 1.8% lower.

Everything from bitcoin to the Mexican peso fell, not just the stocks of US companies expected to be the first to feel pain from Trump's tariffs on goods imported from Canada, Mexico and China. On Wall Street, some of the sharpest losses hit Big Tech and other companies that could be hit hardest by higher interest rates.

The fear is that Trump's tariffs will push up prices for groceries, electronics and all kinds of other bills for US households, putting upward pressure on a US inflation rate that's largely been slowing since its peak three summers ago. Stubbornly high or accelerating inflation could keep the Federal Reserve from cutting interest rates, which it began doing in September to give the US economy a boost.

To be sure, US stock prices remain close to their all-time high, which was set less than two weeks ago. And Monday's losses weren't as bad as some other recent drops, such as one in December when the Fed hinted fewer rate cuts may arrive in 2025 than expected.

But much of Wall Street had been hoping Trump's talk of tariffs through the presidential campaign was just that, talk, and an opening point for negotiations with US trading partners. Now that Trump has followed through, the fear is about how much retaliation will occur in what could be an escalating trade war that damages economies worldwide, including the United States.

“The uncertainty at this stage is tremendous - not only of how these eventual negotiations will play out, but worries about how this is only the tip of the iceberg and more tariffs are on the horizon,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management.

Traders on Wall Street are already paring expectations for how many cuts to interest rates the Federal Reserve may deliver this year, if any. Lower interest rates can encourage US employers to hire more workers, while also goosing prices for investment, but the downside is they can give inflation more fuel.

“Living in the Midwest, I might feel the trade war soonest and most,” said Brian Jacobsen, chief economist at Annex Wealth Management, because of how much crude oil flows over the northern US border to make gasoline. “Our refiners can't easily switch away from Canadian crude”.

Crude oil prices rose, suggesting inflationary pressure may already be starting. A barrel of benchmark US crude rose 1.3% to $73.45. Brent crude, the international benchmark, rose 0.8% to $76.29.

Trump himself warned Americans they may feel “some pain” from the tariffs, which he said would be “worth the price” to make America great again. He also said Sunday night that import taxes will “definitely happen” with the European Union and possibly with the United Kingdom as well.

Among all the uncertainties upsetting Wall Street was the basic question of how Trump would decide whether and when Canada, China and Mexico are doing enough to lift the tariffs.

“It's hard to map out how long this could last,” Jacobsen said.

Wall Street famously hates uncertainty, and prices fell nearly across the board. Nearly 90% of all the stocks in the S&P 500 dropped.

Constellation Brands, the company that sells Modelo and Corona beers and also sells alcohol in Canada, fell 5.6%. Automakers, which import heavily from Mexico, also sank. General Motors dropped 5%.

Instead of stocks and crypto, investors moved instead into US government bonds, which are seen as some of the safest possible investments. The resulting rally in their prices drove longer-term Treasury yields down.

The yield on the 10-year Treasury fell to 4.50% from 4.55% late Friday.

It's a reprieve, at least temporarily, from a rise in longer-term Treasury yields that has shaken Wall Street in recent months. Yields have climbed in part on expectations for just such tariffs from Trump, and the possible result of higher interest rates they could entail. Short-term Treasury yields rose Monday as expectations waned for cuts to rates from the Fed. The yield on the two-year Treasury rose to 4.24% from 4.21%

Higher yields put pressure on all kinds of investments, but they're particularly burdensome on stocks seen as the most expensive.

That puts the spotlight on companies like Nvidia and other winners of the artificial-intelligence boom. Nvidia fell 5.3% and was the heaviest single weight on the S&P 500.

They'd already come under pressure last week, after a Chinese upstart said it had developed a large language model that could perform as well as big US rivals, but without having to use the most expensive, top-flight chips.

That raised doubt about whether all the investment Wall Street had assumed would occur for chips, large data centres and electricity would really have to occur. Such assumptions had driven stocks like Nvidia, Constellation Energy and others to record after record.

The tariffs took centre stage in a week where other events would typically take centre stage, including a report on Friday showing how many workers US employers hired last month.

In stock markets abroad, indexes fell 1.5% in London, 1.7% in Paris and 1.8% in Frankfurt. In Asia, South Korea's Kospi sank 2.5%, and Japan's Nikkei 225 fell 2.7%.

Trump agrees to pause tariffs on Mexico, but import taxes still in place for Canada, China

Washington | Mexican President Claudia Sheinbaum said Monday that after a conversation with US President Donald Trump that the planned tariffs are on hold for a month, a statement confirmed by the White House.

“Mexico will reinforce the northern border with 10,000 members of the National Guard immediately, to stop drug trafficking from Mexico to the United States, in particular fentanyl," Sheinbaum posted on X. “The United States commits to work to stop the trafficking of high powered weapons to Mexico."

The Mexican president added that the two countries would continue talks on security and trade and that "the tariffs are put on pause for a month from now.”

The pause added to the drama as Trump's tariffs against Canada and China are still slated to go into effect on Tuesday. Uncertainty remains about the durability of any deals and whether the tariffs are a harbinger of a broader trade war as Trump has promised more import taxes to come.

Trump posted on social media that he spoke Monday morning with Canadian Prime Minister Justin Trudeau and would “be speaking to him again at 3:00 P.M.” Both Canada and Mexico had plans to levy their own tariffs in response to US actions, but Mexico is holding off for the moment.

Trump used his Monday social media post to repeat his complaints that Canada has been uncooperative, despite decades of friendship and partnerships that range from World War II to the response to the 9/11 terrorist attacks on the United States.

“Canada doesn't even allow US Banks to open or do business there,” Trump posted. “What's that all about? Many such things, but it's also a DRUG WAR, and hundreds of thousands of people have died in the U.S. from drugs pouring through the Borders of Mexico and Canada.”

Financial markets, businesses and consumers are trying to prepare for the possibility of the new tariffs. Stock market indices opened with a modest selloff, suggesting some hope that the import taxes that could push up inflation and disrupt global trade and growth would be short-lived.

But the outlook reflected a deep uncertainty about a Republican president who has talked with adoration about tariffs, even saying the US government made a mistake in 1913 by switching to income taxes as its primary revenue source. Trump said Sunday the tariffs would lift if Canada and Mexico did more to crack down on illegal immigration and fentanyl smuggling, though there are no clear benchmarks. Trump also said the US can no longer run a trade imbalance with its two largest trade partners.

Mexico is facing a 25% tariff, while Canada would be charged 25% on its imports to the United States and 10% on its energy products. China is facing a 10% additional tariff due to its role in the making and selling of fentanyl, the Trump White House said.

Kevin Hassett, director of the White House National Economic Council, said Monday that it was misleading to characterise the showdown as a trade war despite the planned retaliations and risk of escalation.

“Read the executive order where President Trump was absolutely, 100% clear that this is not a trade war,” Hassett said. “This is a drug war."

But even if the orders are focused on illegal drugs, Trump's own remarks have often been more about his perceived sense that foreign countries are ripping off the United States by running trade surpluses. On Sunday, Trump said that tariffs would be coming soon on countries in the European Union. He has discussed tariffs as both a diplomatic tool on national security issues, a way to raise revenues and a vehicle for renegotiating existing trade pacts.

Multiple economists outside the administration have warned that the tariffs would push up prices and hamper growth, with Trump himself saying there would be some short term pain after having campaigned last year on the promise that he could tame inflation.

Joe Brusuelas, chief economist at the consultancy RSM, said the United States was unlikely to fall into a recession this year, but the tariffs would hurt growth and push up the cost of government borrowing, which would potentially keep the interest rates charged on mortgages and auto loans elevated.

“If there is no resolution, the impact on the US economy will be significant,” he said. “Growth will slow notably from the 2.9% average over the past three years as inflation and interest rates rise. The yield on the 10-year Treasury, currently around 4.5%, could climb to a range between 4.75% and 5%.”

Rupee slides by 49p to end at record low of 87.11 against dollar on tariff war worries

Mumbai | The rupee plunged 49 paise to close at an all-time low of 87.11 against the US dollar on Monday as imposition of tariffs on Canada, Mexico and China by the Trump administration fanned fears of trade war and bolstered the American currency in global markets.

Forex traders said the Indian rupee touched a fresh all-time intra-day low of 87.29 to a US dollar on a surge in the US dollar index to above 109 levels and weak global markets.

Donald Trump slapped Canada and Mexico with 25 per cent duties and China with a 10 per cent duty.

At the interbank foreign exchange, the rupee opened on a weak note at 87.00 and touched an intraday low of 87.29 against the American currency during the session.

The local unit finally settled at a record closing low of 87.11, lower by 49 paise over its previous close. On Friday, the rupee settled flat at 86.62 against the American currency.

"We expect the rupee to trade with negative bias on strong US Dollar and FII outflows amid a weak trend in the domestic markets. Worries over tariffs by the US administration may also pressurise the rupee," said Anuj Choudhary – Research Analyst at Mirae Asset Sharekhan.

However, any central bank intervention may support the rupee. Traders may take cues from ISM manufacturing PMI data from the US. Investors may remain cautious ahead of the RBI’s monetary policy meeting this week," Choudhary added.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 1.01 per cent higher at 109.46.

Brent crude, the global oil benchmark, rose 1.41 per cent to USD 76.74 per barrel in futures trade.

The rupee continued to face pressure due to sustained foreign fund outflows and the broad strength of the American currency in the overseas markets due to unabated dollar demand from oil importers and weak risk appetite, traders added.

In the domestic equity market, the 30-share BSE Sensex settled 319.22 points, or 0.41 per cent, lower at 77,186.74, while the Nifty fell 121.10 points, or 0.52 per cent, to close at 23,361.05.

Foreign institutional investors (FIIs) offloaded equities worth Rs 3,958.37 crore in the capital markets on a net basis on Monday, according to exchange data.

Meanwhile, India's forex reserves increased USD 5.574 billion to USD 629.557 billion in the week ended January 24, the Reserve Bank said on Friday. In the previous reporting week, the overall kitty had dropped from USD 1.888 billion to USD 623.983 billion.

The reserves were on a declining trend for the last few weeks, and the drop has been attributed to revaluation, along with forex market interventions by the Reserve Bank of India (RBI) to help reduce volatilities in the rupee.

Meanwhile, Finance Secretary Tuhin Kanta Pandey on Monday said there is no concern over the rupee value, and the Reserve Bank of India is managing the volatility of the local currency.

"There is no concern about the value of the rupee. The volatility in the rupee is being managed by the RBI," Pandey told reporters.

He said the rupee is a "free float" and no control or fixed rate is applicable to the currency.

FM says no targets for rupee value, it is market-determined

New Delhi | The value of Indian rupee is market-determined, and there has been no devaluation, which is a feature of a fixed exchange rate regime, Finance Minister Nirmala Sitharaman said on Monday.

The rupee has been falling in recent weeks, and on Monday touched an all-time low of 87.29 against the American currency.

Various domestic and global factors influence the exchange rate of the rupee such as the movement of the Dollar Index, trends in capital flows, level of interest rates, movement in crude prices, and current account deficit.

In a written reply to the Lok Sabha, Sitharaman said there has been no “devaluation” of the Indian Rupee (INR), which is a feature of a fixed exchange rate regime.

"The value of the INR is market-determined, with no target or specific level or band," she said.

The minister further said the depreciation of currency is likely to enhance the export competitiveness, which in turn impacts the economy positively. On the other hand, depreciation may raise the prices of imported goods.

"However, the overall impact of exchange rate depreciation on domestic prices depends on the extent of the pass-through of international commodity prices to the domestic market," she added.

Furthermore, the imports in the economy also depend on various factors, including the demand and supply of commodities in the international market, kind of tradeable (essential or luxury items), freight costs, and availability of substitute goods.

Thus, the impact of the movement of the exchange rate on the import cost and, hence, on domestic inflation and consumer cost of living cannot be isolated, the minister said.

"The approach towards exchange rate management has remained consistent and well-articulated, in terms of which the value of the INR is market-determined, with no target or specific level or band," Sitharaman said.

Replying to another question, she said unclaimed insurance funds with insurers stood at Rs 21,718 crore at end-March 2024, the Lok Sabha was informed on Monday.

The amount was Rs 23,699 crore at end-March 2023 and Rs 25,403 crore in the preceding year.

Sitharaman said various regulatory measures prescribed by the Insurance Regulatory and Development Authority of India (Irdai) are in place towards reducing unclaimed funds and raising awareness amongst the policyholders regarding the same.

The minister said that to facilitate smoother and speedier claim settlements, Irdai has prescribed documents required for settlement of insurance claims.

Insurers are required to display the information on their websites for information of claimants or beneficiaries.

"Insurers are also instructed not to reject or close a claim for want of documents or for delayed intimation of claim," the reply said.

With regard to penalties on delay in processing of claims, insurers are required to pay interest at the bank rate plus two per cent to the claimant for the period of delay.

Such interest shall be paid by the insurers suo-moto along with the claim amount, which is applicable to all claims, including unclaimed amounts, Sitharaman said.