By Brian Sozzi

Image illustration by Yahoo finance

Trump the Tariff Man has struck, unsettling a ginned up Wall Street that had expected 2025 to be a year of strong economic growth and further big gains for hot AI trades such as darlings Nvidia (NVDA) and Microsoft (MSFT).

The Trump administration levied tariffs of 25% on Canada and Mexico and 10% on China on Saturday, citing issues like fentanyl and illegal immigration.

Duties on all three economic powerhouses will kick in on February 4.

"WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID," President Trump warned in a Truth Social post on Sunday.

Reactions across Wall Street are trickling in, and it would appear economists and strategists agree on Trump's pain shout-out. So do markets: as of this writing Dow Jones Industrial Average futures are down more than 500 points on Monday.

Here are some of the most actionable insights from the Street that have crossed my inbox so far.

Morgan Stanley Public Policy Research Team

"Our economists expect that fully implemented tariffs would have meaningful consequences. A recession in Mexico becomes the base case. US Inflation could be 0.3% to 0.6% higher vs baseline over the next 3-4 months (putting headline personal consumption expenditures inflation at 2.9% to 3.2%) and US growth could be -0.7% to -1.1% lower versus baseline over the next 3-4 quarters (putting real GDP growth at 1.2% to 1.6%). We see a similar or larger growth drag than the 100 basis point hit to Asia and China’s growth in 2018-19. Full implemented tariffs with staying power don’t appear to be in the price of key markets: A bullish scenario for US Treasury duration, as weaker growth expectations increase demand beyond short maturities; meaningful US Dollar strength relative to Peso & Canadian Dollar; US equities may come under pressure, and services should outperform consumer goods."

Watch: What Morgan Stanley's CEO sees for the 2025 M&A market

EvercoreISI Economics Team

"US growth is likely to take a hit as countries move away from US exports, investment falls, and employment declines. Federal receipts should increase, all else equal; some research estimates $1 trillion over the next decade. Our macroeconomic teams have estimated a 40 basis point increase in inflation and a 40 basis point drag on growth in the back half of the year."

EvercoreISI China Strategist Neo Wang

"Timing of Trump’s tariff announcement likely offended both Chinese government and people because the country is still on Chinese New Year holiday. Moreover, news of the tariff slap arrived in China in the morning of February 2, coinciding with this lunar year’s 5th day, which is the day for most Chinese to worship their God of Wealth with offerings and wishes. Unfortunately, Trump stole the attention with his wealth-destructing tariffs, an inauspicious development indeed. This first 10% tariff seems at least aimed to gain an upper hand in the negotiation on TikTok, or force Beijing to the table if negotiation hasn’t started."

JP Morgan Metals & Mining Analyst Bill Peterson

"Many investors we’ve spoken with continue to feel recent rhetoric may be a negotiation tactic given timing has been pushed out since Inauguration Day and timing was briefly pushed to 3/1 before being reversed. Implications to demand destruction longer-term always remains a key concern. Among our coverage, we see the biggest financial risk to Alcoa (AA), GrafTech International (EAF) and Cleveland Cliffs (CLF). On AA, ~40% of Alcoa’s operating smelter capacity is in Canada (vs. only 13% in the US) and ~70% of that production is shipped to the US. Management has indicated it would take 1-2 quarters for trade flows to reshuffle, which would have material implications on near-term earnings. On EAF, its Mexico-based Monterrey facility is the primary source of supply for its US and North America-based customers, likely driving customers to shift to cheaper US-based production (i.e., Tokai/Resonac) and/or India imports, which have been on the rise as of recent. If US graphite electrode pricing were to move high enough (and stay sticky) this could incentivize GrafTech to restart its US-based St.Mary’s facility, but this is a high-cost facility and the underlying demand environment remains sluggish. On CLF, we note risk to its newly acquired Canada exposure given 25-40% of SteelCase's revenues (FY22-1H24) were largely generated in the US."

22V Research Strategist Michael Hirson

"For the near term, we expect Beijing to impose only symbolic tariff increases (if any) on China’s imports from the US. We also expect China’s informal retaliation (such as directing commodity purchases away from the US) to be light as Beijing continues to explore a broader deal with Trump. Could Beijing mollify Trump with actions on fentanyl? The biggest US complaint with Beijing is that Chinese chemical companies are the main source of precursors for fentanyl products, which are then produced in Mexico and third countries. US-China cooperation on fentanyl has improved since the November 2023 Biden-Xi summit, though Beijing could do more to satisfy US concerns with a tougher crackdown on firms exporting to Mexico. Beijing will likely take some specific actions in this regard in coming months, while promising to take stronger measures as a part of a potential US-China deal. What about the broader outlook on US-China trade tensions? We continue to hold a base case that Trump will end up imposing additional tariffs on China imports beyond this initial 10%. These may wait for the outcome of trade policy reviews due on April 1, but of course could come sooner (if Trump becomes impatient) or later (if he explores a US-China trade deal). Trump’s fondness for tariffs, the optics of a very large deficit with China, and the domestic politics of targeting China all make it unlikely that he stops here. We do not dismiss the possibility of a US-China trade deal, though see the political bar as fairly high, especially in this first year of Trump 2.0."

Bernstein Digital Assets Analyst Gautam Chhugani

"Bitcoin and crypto markets are a good reflection of risk-on sentiment in the near term. If tariffs mean stronger dollar, higher inflation and reduced prospects of rate cuts in the short term, it means lower global liquidity for risk-on assets. In the short term, Bitcoin and crypto markets correlate with risk-assets and particularly during weekends, crypto is the only barometer of risk. Thus, crypto sell off is not surprising. Given the global macro dislocation and potential inflationary pressures, shouldn't Bitcoin act as a store of value? With both stronger dollar and higher inflation, why has Bitcoin not reacted as a store of value? Bitcoin trades differently on different time frames. On a longer time frame, as governments carry higher debt and higher deficit, leading to more monetary debasement, Bitcoin holds relative value to the dollar, as is evident in Bitcoin's long term compounding history. But over short time frames, Bitcoin is correlated to risk-assets. There is no evidence of short term un-correlated Bitcoin market unless there is a flight to safety from the fiat banking system."

Vontobel Strategy Team

"The final outcome of this trade war is highly unpredictable, with numerous indirect effects (USD sliding against other major currencies today). There are still many uncertainties, such as whether the tariffs will be applied to value-added or to the total value of the product. We do not rule out that the various parties will reach a compromise. Swiss companies will have to pass on the additional costs to their customers - pricing power and a strong value proposition will be crucial."

Deutsche Bank Strategist Jim Reid

"In terms of implications, if implemented and prolonged, Canada and Mexico would likely go into an imminent recession and potentially see a bigger shock than Brexit was for the UK. It should ensure US core PCE hovers around (or above) 3% rather than dip below 2.5%. It would make it more likely that our view that the Fed won't cut this year proves correct and if growth holds up it could encourage a hike. The US is less exposed to the retaliatory tariffs announced so far in terms of size relative to their economy, but you would still expect several tenths of a percent to be shaved off GDP although how much the raised tariff revenue allows for more tax cuts provides uncertainty. Of course, the dollar should initially be higher.

Although tariffs have not been levied on the EU, this is still a serious blow given what will now probably lay ahead. Aside from direct tariffs, many German automakers serve the US market via Mexico, where they produce final and/or intermediate goods. If the EU has to endure 10% tariffs, our economists' analysis has previously suggested it would be worth 0.5-0.9% off GDP all other things being equal. We have budgeted 0.5pp in our current assumptions. The weekend news does makes it more likely our 1.5% terminal rate call on ECB rates by December will materialise. Markets have been hovering comfortably above 2% this year."

BMO Capital Markets Strategist Brian Belski

"Let’s be clear, tariffs could be gone in days or prevalent for months, if not years. Fear of the unknown typically generates chaos (in other words, volatility) – reactions that could likely bring opportunity, in our view. As such, we are not adjusting our 2025 price or earnings targets for the TSX Index. After all, our process is fraught with discipline, patience, and faith in fundamentals. In addition, we are sticking with our overweighted sectors – Discretionary, Financials, REITs, and Technology. Why? The Canadian stock market is a market of stocks. We believe there are companies within Canada that can, will, and should outperform the broader market over this malaise – period. Cue the broken record, “control what you can control.” How? Now is not the time for grandiosity and home runs. Now is the time to roll up your sleeves, find the most consistent earners, with the best product or services, with proven management teams that deliver fundamental results. Time for quality, cash, dividends, and real companies. And oh by the way, Canada has plenty of them."

TD Securities Economics Team

"The US tariff announcement represents a 50 basis point boost to base case inflation projections that assumed no tariffs on Canada or Mexico. We are upgrading our current fourth quarter forecast, which already included tariff assumptions on other countries, to 3.2% year over year. In the face of this stagflationary shock, we continue to see a high bar for the Fed to hike, and see this supporting our ongoing view that the Fed is on hold until resuming easing in the second half, when weaker growth materializes and new inflationary pressures have subsided.

For markets, we expect a reduction in pricing for Fed easing and a selloff in the US short end, with a more muddied long end balancing higher inflation expectations with a flight to safety bid. The Canadian short end should rally on Bank of Canada easing while the long end should underperform as stimulus is priced in, though 2s to 10s should outperform and out-steepen US Treasuries."

Stifel Analyst Jim Duffy

"Nearly all footwear and apparel sold in the U.S. is sourced internationally. Announced tariffs (25% on goods from Mexico and Canada, incremental 10% on goods from China) effective February 4th are likely impactful to the P&L beginning in the second quarter at the earliest, with full-year impact in 2026. In anticipation of potential tariffs, companies will realign supply chains to minimize imports from high-duty countries, potentially adding operational risk. For most companies in our coverage, direct exposure to imports from these countries is minimal; however, the secondary risk of inflation and related pressure on discretionary spend is a consideration. Rank ordered, we see direct exposure in our coverage greatest for Kontoor Brands (KTB) (30% of COGS from owned manufacturing in Mexico), Warby Parker (WRBY) (China sourcing of frames and lenses), and Yeti (YETI) (China 40% of COGS)."

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram and on LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.

Source: Yahoo finance