Markets Slide as Tariff Fears Roil Sentiment, But Final Impact May Be Lighter Than Feared

U.S. markets sold off sharply in midday trading Wednesday, with the S&P 500 breaching key technical support as investors braced for an anticipated 4 p.m. ET statement from President Donald Trump regarding automotive tariffs. After S&P futures failed to hold the critical 5800 level early in the session, the index sliced through its 50-day moving average, accelerating losses and eventually bottoming at 5754. While the decline reflected a fresh wave of anxiety around trade, there is growing speculation that the announcement could be less severe than feared—offering a potential reprieve to both automakers and inflation-conscious investors.

At the center of the storm are concerns that Trump could push forward with proposed 25% tariffs on imported vehicles from Mexico and Canada, a move that would severely disrupt supply chains and drive car prices higher. According to estimates from Anderson Economic Group, such tariffs could raise the price of many North American-assembled vehicles by $4,000 to $10,000. Electric vehicles, which depend heavily on imported battery components, could see sticker prices surge as much as $12,200. These cost pressures would inevitably feed into headline inflation and possibly force the Federal Reserve to adopt a more hawkish stance—a risk that has not gone unnoticed by markets.

Ask Aime: What impact will the potential automotive tariffs have on the US stock market?

However, context matters, and there are growing reasons to believe the ultimate outcome could be far more measured. According to a Wall Street Journal report citing Senator Bernie Moreno (R., Ohio), the White House is considering narrower tariffs targeting finished vehicles only, rather than the broader category of auto parts. Moreno, who has spoken directly with administration officials, noted that such an approach is designed to incentivize final vehicle assembly in the U.S. while avoiding a complete rupture with key trade partners. President Trump is saying he is probably going to be nicer than he should be. Moreno said that niceness is going to have a very short shelf life.

The political calculus behind the tariff push is clear: the U.S. imports more than three times the value of cars than it exports, and the administration wants to close that gap. But analysts remain skeptical that the White House is truly willing to detonate the auto supply chain. RBC’s Tom Narayan called tariffs a “low probability” disaster that would be “so destructive to the auto industry” as to be self-defeating. Companies like Ford and gm depend on tightly integrated supply chains, with many vehicles built using a majority of parts sourced from Canada or Mexico. The Ford Escape is assembled in Kentucky, but the Chevy Equinox is made in Mexico and the Toyota RAV4 in Ontario—demonstrating just how tangled things have become after 30 years of free trade.

Equity markets, meanwhile, are reflecting investor unease. The Nasdaq Composite dropped over 2% on Wednesday, while the S&P 500 was down more than 1% and the Dow Jones Industrial Average lost 0.4%. High-beta and tech stocks led the decline, with the Invesco S&P 500 High Beta ETF falling 2.7%. Despite the slide, some investors appear to be holding out hope that the final decision will fall short of worst-case expectations, especially as Trump's tone on tariffs has recently softened.

Supporting that view are several signs that the administration may be pursuing a more tactical approach. According to sources cited by The Wall Street Journal, reciprocal tariffs are being tailored based on foreign regulatory and tax burdens, with the possibility of delayed or partial implementation. Analysts at CFRA, including Garrett Nelson, suggest the proposal is being driven more by trade balance frustration than imminent policy urgency.

For now, the market remains caught between fear and fatigue. On one hand, the threat of tariffs has the potential to reaccelerate inflation and undermine an already fragile consumer backdrop. On the other, expectations are so grim that a more restrained outcome could spark relief buying. Wednesday’s price action makes clear that the burden of proof is on the White House—and the tone of Trump’s 4 p.m. announcement could set the course for both autos and broader equity sentiment heading into April.