Analysts and economists alike had been hoping that the full extent of the sanctions proposed for America’s neighboring countries would be lower than feared after concessions were initially made to appease the Trump administration and thus delay the policies.

However, a month after the delay was announced, President Trump confirmed he would push ahead with the 25% import hike—as well as the 20% already announced for Chinese imports—posing serious questions about the future path of inflation, how consumers will weather the storm, and how global businesses will adapt to the new conditions.

At the time of writing, the S&P 500 is down 1.76% over the past 24 hours, the Dow Jones is down 1.48%, and the Nikkei 225 is down 1.2%.

In addition to navigating the higher prices paid in the U.S. for foreign goods, businesses, analysts, and consumers are also waking up to the news that America’s trading partners aren’t taking the Oval Office’s demands lying down.

Despite Commerce Secretary Howard Lutnick’s protestations that retaliatory policies from foreign governments wouldn’t impact the health of America’s economy, China and Canada wasted no time responding with swipes of their own.

Canadian Prime Minister Justin Trudeau, incensed by the 25% hike on his nation’s goods and a 10% hike on Canadian energy, said in a statement last night that he is responding with an equal 25% tariff on $155 billion worth of American goods.

This will begin with tariffs on $30 billion worth of goods before increasing to encapsulate a further $125 billion in goods in three weeks’ time.

“Our tariffs will remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” Trudeau continued. “Because of the tariffs imposed by the U.S., Americans will pay more for groceries, gas, and cars, and potentially lose thousands of jobs.

“Tariffs will disrupt an incredibly successful trading relationship. They will violate the very trade agreement that was negotiated by President Trump in his last term.”

Meanwhile China will impose additional tariffs of 15% on products like chicken, wheat, and corn as well as a 10% tariff on products like dairy, fish, and vegetables.

Mexico has yet to announce its response, but an update is expected on Tuesday morning.

A shifting perspective

While some markets began pricing in the tariff hikes late last week—with Asia, in particular, suffering heavy dips—analysts are adjusting their concerns from shorter-term implications like inflation to longer-term, knock-on effects like growth.

As Jim Reid, research strategist for Deutsche Bank, wrote in a note seen by Fortune this morning: “[The] changing reaction of the dollar comes amid an apparent broader shift in market perspectives on tariffs over the past few weeks, with the focus moving from the potential boost to inflation to the negative implications for growth.

“Two-year Treasury yields (–3.9 bps) fell to 3.95% yesterday, their lowest since October, while the 10-year yield (–5.3 bps to 4.16%) posted its ninth decline in 10 sessions, with a near 40 bps retreat over the past two weeks. And perhaps the best example of the dramatic market narrative shift is the two-year real Treasury yield, which is down to below 0.70% this morning, more than halving from its 1.47% peak on Jan. 22, just after Trump took office.”

Indeed, as Uncle Sam continues to delve deeper into a trade deficit—making America’s economy all the more reliant on the very trading partners President Trump has decided to punish—growth expectations for 2025 are sharply dropping.

The Atlanta Fed’s GDPNow model shifted on March 3 to estimate real GDP growth in the first quarter of 2025 at –2.8%, down from –1.5% on Feb. 28.

“Virtually all recent real economic data has surprised to the downside, including jobless claims, which unexpectedly spiked above expectations,” added Jeremy Siegel, emeritus professor of finance at the Wharton School of the University of Pennsylvania.

Writing for WisdomTree, a finance business where he serves as senior economist, Siegel added: “The weight of uncertainty and slowing growth suggests continued volatility, with the bond market suggesting a more dovish Fed. If growth continues to weaken, rate cuts could arrive earlier than expected, providing a cushion for equities in the second half of the year.”