Wall Street reels as Trump threatens tariffs on Mexico

(Reuters) – U.S. stocks fell on Friday after President Donald Trump’s shock threat of tariffs on Mexico fueled fears that escalating trade wars could push the world’s largest economy into recession.

Washington will impose a 5% tariff from June 10, which would then rise steadily to 25% until illegal immigration across the southern border was stopped, Trump tweeted late on Thursday.

Mexican President Andres Manuel Lopez Obrador on Friday urged his U.S. counterpart to back down.

“This comes at a time when companies have to be looking at alternatives to the Chinese supply chain. Many thought Mexico would be an alternative, but now that looks in jeopardy,” said Cliff Hodge, director of investments at Cornerstone Wealth.

“The risk is that these tariffs, along with those imposed on China, push an already soft business cycle into a full-blown recession.”

Wall Street’s main indexes are down more than 6 in May, their worst performance this year, as investors fret over a protracted U.S.-China trade war and seek safety in government bonds.

U.S. Treasury yields fell to new multi-month lows, while the yield curve, as measured in the gap between three-month and 10-year bond yields, remained deeply inverted. An inversion in the yield curve is seen by some as an indicator that a recession is likely in one to two years.

The broader financial sector was under pressure, falling 1%, while bank stocks slipped 0.95%.

U.S. carmakers and manufacturers were among the worst hit. General Motors Co dropped 4.7% and Ford Motor Co 2.9%, pushing the consumer discretionary sector 1.26% lower.

At 12:38 p.m. ET the Dow Jones Industrial Average was down 267.64 points, or 1.06%, at 24,902.24, the S&P 500 was down 29.09 points, or 1.04%, at 2,759.77 and the Nasdaq Composite was down 88.42 points, or 1.17%, at 7,479.30.

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