The threat of a punishing trade war sent Wall Street on a roller coaster Monday. After initially falling sharply on worries about President Donald Trump’s tariffs, U.S. stocks pared their losses after Mexico said it had negotiated a one-month reprieve.

The S&P 500 ended up falling 0.8% after Asian and European indexes logged worse drops. The Dow Jones Industrial Average lost 122 points, or 0.3%, and the Nasdaq composite sank 1.2%.

The U.S. stock market had been on track for a much worse loss at the start of trading on worries about how much pain U.S. companies would feel because of the tariffs. The S&P 500 was briefly down nearly 2%, and the Dow dropped as many as 665 points.

Some of the heaviest losses hit Big Tech and other companies that could be hurt most by higher interest rates that could result from the U.S. tariffs announced on imports from Canada, Mexico, and China.

The fear hanging over Wall Street is that Trump’s tariffs could push up prices for groceries, electronics, and all kinds of other bills for U.S. households, adding upward pressure on a U.S. inflation rate that’s largely been slowing since its peak three summers ago. Stubbornly high or accelerating inflation could keep the Federal Reserve from cutting interest rates, which it began doing in September to give the U.S. economy a boost. Profits for U.S. companies, meanwhile, could face downward pressure from slowing global trade.

But U.S. stocks pared their losses after Mexican President Claudia Sheinbaum said tariffs on her country’s goods are on hold for a month following a conversation with Trump. The Dow even turned briefly higher in the afternoon for a small gain. After the U.S. stock market closed for the day, Canadian Prime Minister Justin Trudeau said a conversation he had with Trump also led to a 30-day pause.

Much of Wall Street had been hoping Trump’s talk of tariffs through the presidential campaign was just that, talk, and an opening point for negotiations with U.S. trading partners instead of a permanent policy. Monday’s swivels on Mexico and Canada leave open the question of whether Trump is using tariffs as merely a tool for negotiations.

But when traders came into Monday morning thinking tariffs were imminent, fear rose quickly about the potential for an escalating trade war that could damage economies worldwide, including the United States.

“Living in the Midwest, I might feel the trade war soonest and most,” said Brian Jacobsen, chief economist at Annex Wealth Management, because of how much crude oil flows over the northern U.S. border to make gasoline. “Our refiners can’t easily switch away from Canadian crude.”

Crude oil prices swung Monday amid the uncertainty. The price for a barrel of benchmark U.S. crude went from $72.53 on Friday to nearly $75 before the U.S. stock market opened Monday to briefly falling back toward $72.

Trump himself warned Americans they may feel “some pain” from the tariffs, which he said would be “worth the price” to make America great again. He also said Sunday night that import taxes will “definitely happen” with the European Union and possibly with the United Kingdom as well.

Some on Wall Street remain skeptical about how long a trade war may last, especially considering how much attention Trump pays to the stock market. An escalating trade war can send stocks skidding, as Monday morning quickly demonstrated, and “significant stock market volatility could lead to a change in approach,” said Solita Marcelli, chief investment officer, Americas, at UBS Global Wealth Management.

Constellation Brands, the company that sells Modelo and Corona beers in the United States, fell 3.5%. Best Buy, which sells electronics made around the world, lost 2.4%. Brown-Forman, the company behind Jack Daniel’s that sells alcohol in Canada, fell 3.3%.

All told, the S&P 500 fell 45.96 points to 5,994.57. The Dow dropped 122.75 points to 44,421.91, and the Nasdaq composite sank 235.49 to 19,391.96.

Instead of stocks and crypto, whose prices also fell in the tumult, investors moved instead into longer-term U.S. government bonds, which are seen as some of the safest possible investments. The resulting rally in their prices drove Treasury yields down.

The yield on the 10-year Treasury edged down to 4.53% from 4.55% late Friday after earlier dropping as low as 4.46%.

It’s a reprieve, at least temporarily, from a rise in longer-term Treasury yields that had shaken Wall Street in recent months. Yields had climbed in part on worries about the possibility of higher interest rates because of stubbornly high inflation.

Short-term Treasury yields rose Monday as expectations waned for cuts to rates from the Fed. The yield on the two-year Treasury rose to 4.25% from 4.21%.

Higher yields put pressure on all kinds of investments, but they’re particularly burdensome on stocks seen as the most expensive.

That puts the spotlight on companies like Nvidia and other winners of the artificial-intelligence boom. Nvidia fell 2.8% and was one of the heaviest weights on the S&P 500. Such AI superstars had already come under pressure last week after a Chinese upstart said it had developed a large language model that could perform as well as big U.S. rivals, but without having to use the most expensive, top-flight chips.

Trump’s tariffs took center stage in a week where other events would typically take the spotlight, including a report on Friday showing how many workers U.S. employers hired last month. A slew of profit reports are also due this week from Alphabet, Amazon, and other highly influential companies.

In stock markets abroad, indexes fell 1% in London, 1.2% in Paris, and 1.4% in Frankfurt. In Asia, South Korea’s Kospi sank 2.5%, and Japan’s Nikkei 225 fell 2.7%.

Experts suggest that the volatility seen on Monday is a clear indication of the market’s sensitivity to geopolitical events and policy changes. The tariffs, if implemented, could have far-reaching effects on various sectors, including technology, consumer goods, and energy. Companies that rely heavily on global supply chains, such as Apple and Tesla, could face significant challenges in maintaining their profitability.

In the tech sector, companies like Apple and Microsoft could see increased costs for components sourced from China and other affected countries. This could lead to higher prices for consumers or reduced profit margins for these companies. In the energy sector, the reliance on Canadian crude oil for refining gasoline in the Midwest highlights the interconnected nature of global trade and its impact on domestic industries.

The tariffs also raise concerns about the potential for retaliation from other countries, which could further escalate the trade war. This could lead to a cycle of increased tariffs and counter-tariffs, ultimately harming global economic growth and stability.

In response to these challenges, some companies are already exploring alternatives to mitigate the impact of tariffs. For instance, some manufacturers are considering shifting production to countries not affected by the tariffs or investing in domestic production capabilities. However, these strategies come with their own set of challenges, including higher costs and potential disruptions to established supply chains.

Despite the uncertainties, some economists remain optimistic about the long-term prospects of the U.S. economy. They argue that the tariffs could serve as a catalyst for domestic manufacturing and innovation, ultimately benefiting the U.S. economy in the long run. However, this optimism is tempered by the immediate challenges and volatility that the tariffs could bring.

In conclusion, the impact of Trump’s tariffs on the U.S. economy and global markets remains a complex and evolving issue. While the initial market reaction on Monday was volatile, the eventual outcome will depend on how the tariffs are implemented and the responses from other countries. As the situation develops, it will be crucial for businesses and investors to stay informed and adapt to the changing landscape.