Stocks tumbled Friday after President Donald Trump unexpectedly announced he would be unleashing tariffs of up to 25% on all Mexican imports, adding to trade concerns that have plagued investors for weeks.

The S&P 500 (^GSPC) fell 1.32%, or 36.8 points, as of market close, with the Materials sector leading declines. The Dow (^DJI) dropped 1.41%, or 354.84 points, while the Nasdaq (^IXIC) retreated 1.51%, or 114.57 points.

The new tariffs, which will begin at a rate of 5% starting June 10, were unveiled as a move by the Trump administration to try and pressure Mexico to crack down on Central American migrants attempting to cross the U.S. border. Trump said the tariffs will rise to 10% on July 1 if Mexico does not take sufficient action, and will increase by 5% each month thereafter to as much as 25% by October 1.

“The Tariff will gradually increase until the Illegal Immigration problem is remedied,.. ... at which time the Tariffs will be removed,” Trump said in a Twitter post Thursday.

In a subsequent Twitter post Friday, Trump said, “Mexico makes a FORTUNE from the U.S., have for decades, they can easily fix this problem. Time for them to finally do what must be done!”

The duties on Mexican imports will carry major implications for companies with operations south of the border, and particularly for U.S. automakers. By market close, shares of Ford (F) dropped 2.36%, while shares of General Motors (GM) were off 4.25%.

“U.S. trade with Mexico is all about cars. This would cripple the auto industry,” Deutsche Bank’s Torsten Slok told Yahoo Finance. “It would bring car production to a halt pretty quickly.”

According to data cited by Slok, 35% of U.S. auto exports, from a value-added standpoint, are composed of parts manufactured in Mexico. This proportion has grown each year since the North American Free Trade Agreement (NAFTA) took effect in the mid-1990s.

[Read more: Trump’s Mexico tariffs will cripple U.S. automakers]

Imposing these tariffs broadens out the trade war between the U.S. and some of its major trade partners. Trump, a self-proclaimed “Tariff Man,” has continued to deploy additional levies on imports by trade partners as a preferred method of policy, despite the volatility such moves have stirred up in equity markets.

“This doesn’t bode well for trade negotiations with Japan and the European Union. Trump's latest move shows he is not afraid of fighting multiple trade wars at the same time,” Raoul Leering, head of international trade analysis for ING, wrote in a note Friday. “We expect that he will threaten to hike tariffs again if the EU and Japan don't sufficiently acquiesce to his demands to grant the U.S. better terms of trade.”

The drop in the major U.S. indices Friday morning as market participants priced in the impact of the additional duties “looks about right” when compared to the market reaction from previous tariff announcements, Neil Dutta, head of economics at Renaissance Macro Research, wrote in an email Friday.

“On average every 16bn in tariffs, cuts about 1.5% off the S&P 500,” Dutta said. “5% on $350bn U.S. imports from Mexico works out to $17.5bn in tariffs. So again, around 1.5% off in stocks.”

As of market close Friday, the S&P 500 was down 2.6%, the Dow was down 3% and the Nasdaq was down 2.4% for the week as investors also reacted to trade-related sparring between the U.S. and China, which have each threatened to impose additional tariffs.

U.S. Treasuries resumed their rally, with yields down across the curve. The 10-year U.S. Treasury yield (^TNX) dropped 8.8 basis points to 2.137% Friday afternoon. It held below the 3-month Treasury yield, which was down 2.1 basis points to 2.351%.

ECONOMY

Personal income rose 0.5% in April, the Bureau of Economic Analysis reported Friday, exceeding expectations for an increase of 0.3%. This was above March’s increase of 0.1%. Wages and salaries – which comprise the largest component of personal income – rose 0.3% in April, below March’s 0.4% rise.

Personal spending, the largest component of U.S. economy activity, rose 0.3% in April, outpacing expectations for a 0.2% increase. March’s reading for personal spending was upwardly revised to have risen 1.1%, versus the 0.9% pace seen previously.

Personal consumption expenditures (PCE), which tracks price changes in consumer goods and services, rose 0.3% on a monthly basis in April and 1.5% over last year. Core PCE, which excludes volatile food and energy prices, rose 0.2% in April, matching expectations. Year-over-year, the metric rose 1.6%, also in-line with expectations and slightly above March’s downwardly revised reading for a 1.5% rise. Core PCE serves as the Federal Reserve’s preferred inflation gauge.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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