Tariff-exposed stocks feel the squeeze as trade war heats up

By Medha Singh and Kanchana Chakravarty

(Reuters) -Shares of U.S. companies were under pressure after the latest escalation in Washington’s trade war, with new tariffs on Canada and Mexico expected to hit earnings in several sectors, including automobiles, aerospace, retail and housing.

Economically sensitive stocks such as airlines and banks led declines on Wall Street’s main indexes on Tuesday on the new tariffs. Monday, the benchmark S&P 500 suffered its worst day of this year after the U.S. tariffs were confirmed. [.N]

U.S. President Donald Trump imposed 25% tariffs on imports from Mexico and Canada, effective Tuesday. The action covers more than $900 billion worth of annual U.S. imports from the two countries.

Trump also doubled duties on Chinese imports to 20% to punish Beijing over the U.S. fentanyl overdose crisis. The cumulative duty comes on top of up to 25% tariffs imposed during his first term.

Canadian Prime Minister Justin Trudeau, speaking just hours after the U.S. tariffs took effect, announced immediate 25% tariffs on C$30 billion ($20.66 billion) of U.S. imports, with the potential to target an additional C$125 billion in 21 days if necessary.

China also responded with additional tariffs of 10%-15% on certain U.S. imports from March 10, while Mexico is poised to swiftly retaliate against its long-standing ally.

AUTOMOBILES

Shares of U.S. automakers Ford and GM lost 1.9% and 1.6%, respectively, on Tuesday, as the sector is heavily exposed to tariffs due to the integrated nature of auto manufacturing between the three North American nations.

S&P Global estimates the new duties on imports from Mexico and Canada could cost affected U.S. carmakers on average 10%-25% of their annual EBITDA.

Trump’s 25% tariffs on imported steel and aluminum would also increase costs for the industry, which accounted for 15% of net shipments of iron and steel in 2024, S&P Global said in a note.

J.P. Morgan analysts also expect automakers to bear the brunt of direct cost from tariffs on Canada and Mexico, with some pain to be shared with suppliers, dealers and consumers.

This could cost General Motors about $14 billion (or substantially all of the earnings before interest and taxes it guides to globally this year) and Ford about $6 billion (or ~75% of the EBIT it guides to globally this year), they said.

Ford has three plants in Mexico. It exported just under 196,000 cars to North America in the first half of 2024, with 90% going to the U.S., according to Mexico’s AMIA.

Stellantis makes 39% of its North American vehicles in Mexico or Canada, while General Motors and Ford Motor make 36% and 18% there, respectively, according to a November report from Barclays.

GM’s three plants in Canada produce electric vans, the Chevrolet Silverado Heavy Duty truck, and the V8 engine and dual clutch transmission.

HOMEBUILDERS

U.S. homebuilders, who import raw materials from the neighboring countries, are also likely to see an increase in costs from the new tariffs.

The PHLX Housing index, which has shed about 4.8% so far this year, edged lower on Tuesday.

Tariffs on finished products such as appliances, electronics, cabinets and fixtures from Mexico and China can further increase the cost of building a home, S&P Global said.

The building materials companies are experiencing some margin pressure from higher commodity, labor and freight costs and the new tariffs could further stress margins, it said.

AEROSPACE SUPPLIERS

Canada is the U.S.’ top import country and third-largest export country for aerospace by dollar value, according to the Aerospace Industries Association.

The tariffs could raise costs for already-stressed suppliers and their planemaking customers such as Boeing. Shares of Boeing slumped 5%.

Canadian manufacturers also produce engines for General Dynamics’ Gulfstream and Textron, as well as landing gear for Boeing and Airbus.

Mexico has fast-growing aerospace hubs in Queretaro and Chihuahua, attracting large suppliers, including Honeywell.

STEELMAKERS

Steel imports accounted for about 23% of U.S. steel consumption in 2023, according to American Iron and Steel Institute data, with Canada, Brazil and Mexico being the largest suppliers.

Canada, whose abundant hydropower resources aid its metal production, accounted for nearly 80% of U.S. primary aluminum imports in 2024.

Aluminum producer Alcoa said last month that Trump’s plan to impose a tariff could cost about 100,000 U.S. jobs and would itself not be enough to entice it to boost production in the country. Its shares fell 1.4%

Shares of U.S. Steel, Nucor, Steel Dynamics and Cleveland-Cliffs slumped between 1% and 4%.

AIRLINES & HOTELS

Concerns over a U.S. slowdown slammed airline stocks, with the S&P Composite 1500 Passenger Airlines index declining 6% and heading for its worst day in more than a year.

Meanwhile, shares of U.S. hotel chains Hilton Worldwide , Marriott International and Hyatt Hotels fell between 0.5% and 1.6%.

“As retailers, other businesses warn their customers about higher prices from tariffs, there’s a feeling that people will have less discretionary spending available for holidays and vacations,” said Michael Ashley Schulman, chief investment officer at Running Point Capital.

“Similarly, businesses may also reduce corporate travel in order to help keep their expenses in check and maintain margins.”

($1 = 1.4523 Canadian dollars)

(Reporting by Kanchana Chakravarty, Medha Singh and Shivansh Tiwary in Bengaluru; editing by Arpan Varghese, Shilpi Majumdar and Maju Samuel)

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