By Reshma Kapadia
President Donald Trump signed an executive order Monday evening, raising tariffs on aluminum and steel imports from 10% to 25%, hitting a host of trading partners including Canada, Mexico, Japan and South Korea. In a press briefing, Trump said the steel and aluminum tariffs could rise further. In the past, some countries had been exempted but that isn't the case with this order so far, though Trump opened the door to granting exemptions to some countries. Trump said he spoke with Australia's prime minister -- a country where he said he may consider an exemption, noting that Australia is one of the few countries that has a trade surplus with the U.S. Details, including when the tariffs become effective, have yet to be released . The latest batch of tariffs that come on the day 10% tariffs on all Chinese goods go into effect. Trump also threatened to impose "reciprocal tariffs" over the next two days, imposing levies on countries that have duties on U.S. imports. "If they charge us, we charge them. If they are at 25%, then we are at 25%," Trump said in a press briefing, adding that the U.S. is looking at tariffs related to semiconductors, cars and pharmaceuticals.
Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management, expects the broader market and economic hit from this latest batch of tariffs on steel and aluminum to be limited. The U.S. imports roughly a quarter of the steel the country consumes and three-quarters of the aluminum needed -- with much of it coming from America's closest trading partners, Canada and Mexico. Steel-intensive industries like construction, appliances, autos, heavy machinery, as well as aluminum-intensive industries like transportation, industrial and consumer equipment, are likely to get hurt, Marcelli says via email.
While it could create some short-term margin pressure on industrial companies, she says any added costs will be offset by higher prices. For most end markets, direct raw material costs aren't a big component of retail prices. For context, she says, steel and aluminum account for about 10% of the sticker price for cars -- with some of that likely be passed on to consumers, cushioning the hit to profitability.
All those potential moves could add up to a significant remaking of the trade landscape, but some analysts see each new round of tariff pronouncements producing a more skeptical stock market. That was true after Trump unveiled, and then paused, 25% tariffs against Mexican and Canadian goods, triggering a panic and then a rebound in markets.
Tariffs may truly matter to investors when they affect U.S. business and consumer confidence, or spark problems in terms of financial stability, possibly through a sharp currency move, said Nicholas Colas, co-founder of DataTrek Research.
While number of mentions of tariffs on earnings calls has soared, Colas noted that they are just one factor at a time the picture is still favorable for the economy and earnings. High-yield credit spreads -- the gap between yields on junk-rated debt and on Treasury debt -- are still narrow, another indication that the market isn't that worried, he said.
That said, Colas cautioned that small things can turn into bigger problems, as was the case during the late 1990s Asian financial crisis. "When you start shifting the balance of payments and balance of trade, weird things could happen," he said.
One point to watch is whether the stock market's so-called fear gauge, the VIX, rises from its current level around 16 to more than 20, and remains there for a couple of weeks. Another sign of trouble would be if the currency of one of the countries embroiled in the tariff battle, such as Canada, Japan, Mexico, or even another emerging market, starts making sharp moves that begin to raise concern that trouble might spread.
In a note to clients, Anthony Saglimbene, chief market strategist at Ameriprise, wrote that he is cautious the market could be in for steeper declines if all of what Trump has proposed is actually enacted in full and over a prolonged period. He recommends clients stand still, rather than making big moves, giving the current level of uncertainty.
Investors may be taking that advice to heart as they try to find a way to live with the drumbeat of tariff threats and subsequent dealmaking.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 10, 2025 18:42 ET (23:42 GMT)
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