US stock futures drop Friday after Trump's 35% tariff on Canada
- Trump announces 35% tariff on Canada late Thursday.
- US administration took special note of Canadian tariffs on US dairy industry.
- Trump said he might reduce rate if Canada comes to table on fentanyl inflow.
- US stock futures drop on news, but UBS says investors expect a walk back.
US President Donald Trump's letter to Canada announcing 35% tariffs on its northern neighbor has sent US stock futures lower on Friday. Trump sent the letter late Thursday, which warns Canada and Prime Minister Mark Carney not to retaliate.
Futures for the Dow Jones Industrial Average, S&P 500 and NASDAQ 100 are all trading a half percentage point lower before the opening bell on Friday. The tech-heavy NASDAQ is performing about 15 basis points better than the value-centric Dow Jones.
US Treasury yields climbed on the news, while European stock markets slid on expectations Trump would offer a higher tariff rate on the European Union than the 20% he originally announced in April. Unflummoxed, Bitcoin climbed to a new all-time session in the premarket above $118K.
Page 1 of President Trump's tariff letter to Canada
Page 2 of President Trump's tariff letter to Canada
In the letter from the White House, the President declared that any retaliation by Canada would be met by the US raising its 35% tariff by an identical figure. Trump singled out Canada's tariffs on the US dairy industry, which he claimed go as high as 400% in some cases.
Calling the US' trade deficit with Canada a matter of national security, Trump's letter implied that the tariff rate could drop if his administration received more help from Mark Carney's government in stopping the flow of illegal fentanyl into the US despite many drug experts calling Canada's part in the problem insignificant.
UBS' Paul Donovan wrote in a client note that investors largely expect Trump to back down somewhat on the rate, negotiate an easier deal or exempt a number of industries and products in has come to be called the TACO trade. This acronym stands for Trump Always Chickens Out and stems from the President delaying his initial tariff levels back in April and walking back earlier aggressive announcements with Canada and Mexico.
Canada is often the first or second largest trading partner with the US and shares that distinction with Mexico. Its trade deficit with the US was $64 billion in 2024, much lower than Mexico's $171 billion.
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Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
