Auto stocks are hoping to rebound this week, after taking big losses from President Donald Trump’s unexpected announcement of steep tariffs on foreign steel and aluminum. The price hike on imports threaten to make carmakers’ input costs — which consist largely of materials like steel and aluminum — soar.
Specifically, Trump said that the U.S. will impose 25 percent tariffs on steel imports and 10 percent tariffs on aluminum. He did so at a meeting with steel and aluminum executives at the White House.
Auto stocks feeling the pain. Ford Motor Co. (ticker: F), General Motors Co. ( GM), Toyota Motor Corp. ( TM), Tesla ( TSLA) and Honda Motor Co. ( HMC) all saw shares immediately lose between 2 and 5 percent of their value.
Most of the weight in modern cars is attributable to steel, which is typically used for the chassis, the vehicle’s metallic skeleton that protects drivers in crashes. Aluminum is also an increasingly popular component in cars, as its lightweight nature enhances performance.
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While auto stocks have outsized exposure to steel and aluminum price fluctuations, it wasn’t just that industry that went into the red following Trump’s surprise proclamation.
Just as a sense of calm was returning to Wall Street after February’s market correction, Thursday’s move caused markets as a whole to crater: The Dow Jones industrial average fell more than 500 points, or 2 percent, with the Standard & Poor’s 500 index and Nasdaq both losing 1.5 percent as well.
In the Thursday White House press briefing, press secretary Sarah Sanders said that final details of the tariffs will be issued this week. On CNN’s “State of the Union” on Sunday, White House trade adviser Peter Navarro said no countries are being considered exempt from the tariffs.
The specter of inflation and retaliation. The surprise move could have ramification far beyond Detroit. The aggressive tariffs are seen as being inflationary — less than a month after inflation fears helped lead to the worst month for stocks in more than two years.
The purpose of tariffs is to level the playing field, and therefore you have prices that are less competitive since they’re not being set by the free market alone. Less competition means higher prices, and that’s exactly what inflation is.
Trump’s steel and aluminum tariffs, meant to boost American industry, could end up doing the exact opposite. Aside from auto stocks, other manufacturers like Boeing Co. ( BA) and Lockheed Martin Corp. ( LMT) each fell about 3 percent.
Apart from the market fluctuations though, this could be bad news for consumers, as auto companies pass on increased costs directly to them via higher car prices. If Boeing and Lockheed Martin see large cost increases as well, they would be more likely to raise prices too — a move that would further balloon the defense budget and ultimately hurt the American taxpayer.
There could also be fallout in the job market, as manufacturers have less money to spend on expanding their labor force and giving employees raises.
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The most ominous possibility though, is that there’s retaliation from international trading partners. If China, America’s largest partner in trade, decides to slap taxes on meaningful U.S. exports, it could seriously hurt the economy and end up crushing U.S. manufacturing.
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Trump’s Surprise Steel, Aluminum Tariffs Crush Auto Stocks originally appeared on usnews.com
