Trump tariff plan rattles stocks, pushes dollar, Treasury yields higher

By Lawrence Delevingne and Harry Robertson

BOSTON/LONDON (Reuters) -Wall Street stocks slipped and the dollar gained on Friday after President Donald Trump announced tariffs on Canada, Mexico and China, capping a volatile week for markets.

The U.S. will impose 25% tariffs on Canada and Mexico, along with 10% on China, White House spokeswoman Karoline Leavitt said on Friday, but she declined to say whether there will be exemptions. Reuters earlier quoted sources saying that Trump would delay collection of the duties until March 1 and offer a limited process for certain imports to be exempted.

Wall Street shares reversed on Friday to finish in negative territory. The Dow Jones Industrial Average ended down 0.75%, the U.S. S&P 500 stock index lost 0.5%, and the tech-heavy Nasdaq dropped 0.3%.

"As was the case for Monday’s AI news, it remains to be seen how the markets will absorb this development on a longer-term basis," Daniel Skelly, head of Morgan Stanley's Wealth Management Market Research & Strategy Team, said in an email. "This week has been a reminder of how unexpected events can quickly shift market perceptions."

The Nasdaq had lost 2.9% on Monday as the surging popularity of cheap Chinese AI model DeepSeek shook investor confidence in U.S. tech stocks and sent chipmaker Nvidia plunging 17%. But earnings reports and forecasts this week from Meta and Tesla helped sentiment recover somewhat. 

Apple initially added to the cautiously optimistic mood late on Thursday when it forecast relatively strong sales growth, but its stock fell about 0.7% Friday.

European shares closed at a record high, led by technology stocks, as earnings from companies such as Novartis and Hexagon overshadowed concerns over economic recovery.

TARIFFS LOOM

In currency markets, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.25%

The Canadian dollar lost 0.26% and the peso was 0.24% higher in choppy trading . 

Trump is threatening punitive duties if Canada and Mexico do not take stronger action to halt the flow of the deadly opioid fentanyl and precursor chemicals into the U.S., as well as illegal migration. Goldman Sachs economists have estimated that across-the-board tariffs on Canada and Mexico would imply a 0.7% increase in core inflation and a 0.4% hit to gross domestic product.

"There is big market complacency in terms of the manner that the market could digest the tariffs," Michael Nizard, multi-asset chief investment officer at Edmond de Rothschild, said earlier on Friday.

The euro and sterling both declined about 0.1% versus the dollar.

Data on Friday showed the U.S. personal consumption expenditures price index rose 0.3% last month after an unrevised 0.1% gain in November, in line with economists' expectations.

“Disinflation continues, and should continue given underlying trends," David Alcaly, lead macroeconomic strategist at Lazard Asset Management, said in an email. 

"Concerns about recent bumpiness are overblown and have more to do with the potential for inflationary policy change like tariffs than with current conditions."

Benchmark 10-year Treasury yields jumped following the Trump tariff plans and were last up 3.7 basis points to 4.549%.

Data on Thursday showed U.S. economic growth slowed in the fourth quarter, but remained robust enough for investors to expect the Federal Reserve - which held interest rates on Wednesday - to lower borrowing costs only gradually this year.

Euro zone short-dated government bond yields were on track to record their biggest weekly drop in months, after a raft of weak economic data led traders to ramp up their bets on future rate cuts from the European Central Bank. The ECB cut rates on Thursday and signaled more easing was coming.

Oil prices eased on Friday and closed the week lower. Brent crude futures <LCOc1> for March, which expire on Friday, settled down 11 cents at $76.76 a barrel.

Gold prices surpassed the key $2,800 mark for the first time on Friday, fuelled by a rush to safety. 

(Reporting by Lawrence Delevingne in Boston and Harry Robertson in London. Additional reporting by Iain Withers and Ankur Banerjee. Editing by Rod Nickel, Nick Zieminski and Deepa Babington)