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(Bloomberg) — US President Donald Trump is planning to slap tariffs on goods from Canada and Mexico on Saturday. Now comes the guessing game of how they will affect the global stock market.
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Distilling the nuance from the noise of any announcement from Trump will be a challenge for investors. For example, on Thursday Trump indicated that the tariffs would start on Saturday, then on Friday Reuters reported that they would actually take effect on March 1, and finally on Friday afternoon the White House confirmed that they will in fact hit on Feb. 1.
Beyond that little bit of chaos, there’s still plenty of uncertainty. Trump could put 25% tariffs on all imports from Canada and Mexico or phase in higher duties on a monthly basis. He could give reprieves to specific industries like autos and energy in a targeted way that investors interpret as a softening of his harsh warnings. And his plan for China and Europe remains a wild card.
“Because we don’t know what’s going to happen, we have to assume that there’s a general increase in tariffs on just about everything which is imported into the States,” Chris Beckett, head of research at Quilter Cheviot, said. “Then you start worrying about tit-for-tat retaliation and general reductions in free trade.”
What’s interesting is in the 10 days since Trump’s initial tariff threat on Jan. 21, the S&P 500 Index is essentially flat while equity benchmarks in Europe, Canada and Mexico are all higher, and the Nasdaq Golden Dragon Index, which is comprised of companies that do business in China but trade in the US, has jumped more than 4%.
“The market has already priced in quite a lot on the US tariffs issue, but there’s always a risk that Trump will go beyond what’s expected,” Gilles Guibout, head of European equities at AXA IM, said in a phone interview. “There’s a general feeling of uncertainty that goes beyond the tariff issue: Trump is completely unpredictable.”
Here’s a look at which global stocks and sectors could be most at risk from Trump’s plans:
Canada and Mexico
With the tariffs on Canada and Mexico expected to hit in a day, traders are on alert for big swings in sectors that are considered the front lines of any trade war.
Automakers such as General Motors Co., Ford Motor Co. and Stellantis NV, which have global supply chains and massive exposure to Mexico and Canada, could see significant swings. Electric vehicle manufacturers Tesla Inc., Rivian Automotive Inc. and Lucid Group Inc. could also feel the pinch. Mentions of the word “tariffs” are already surging on earnings calls.
“The tariffs on Mexico and Canada is actually the worst possible news for US equities and the US economy,” said Thomas Brenier, head of equities at Lazard Freres Gestion. “It’s bad news for the US industrial complex and will severely raise costs for carmakers and disrupt supply chains.”
The pharmaceutical, steel, copper and aluminum industries are under a microscope as well since Trump threatened tariffs on them. Industrial manufacturers like Deere & Co., Caterpillar Inc. and Boeing Co. could struggle. In particular, aircraft maker Bombardier Inc. is uniquely positioned as a Canada-based company with manufacturing operations in Mexico that sells its products in the US.
On the other hand, small-cap stocks are likely to be unaffected and therefore stand to benefit competitively, as their operations typically are domestically based, enabling them to avoid the threat of protectionist economic policies.
China and Asia
The president on Thursday indicated he would move forward with 10% import duties on China, but did not specify timing.
Foreign investors have fled almost all regional markets since the US Presidential election amid increasing focus on Trump’s “America First” policies. Few sectors in Asia have delivered positive returns — the sub-gauges for materials and utilities have plunged more than 10% each, while those of real estate, consumer staples and energy have fallen more than 5% each.
The China revenues from Asian chip giants including Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. have come under the spotlight as the US readies tougher rules to keep advanced chips out of China’s reach. US semiconductor manufacturers including Nvidia Corp., Applied Materials Inc. and Broadcom Inc. could also take a hit.
Solar companies also face a significant risk since China controls a major chunk of that industry’s supply chain. Investors will be watching stocks like the world’s biggest solar module maker, Longi Green Energy Technology Co. and its smaller peer JA Solar Technology Co. Korean EV battery suppliers such as Samsung SDI Co. and LG Chem Ltd. are also in focus as Trump has threatened to eliminate a consumer tax credit aimed at boosting electric vehicle adoption.
Europe
While the euro region is unlikely to feel immediate pain from Trump’s levies, it isn’t completely off the hook, as the US president has indicated that Europe could face its own set of tariffs. Members of the Stoxx 600 Index generate only 40% of their revenues within the EU, with 26% coming from North America.
Tariffs of 10% on European goods would shave between 1% and 2% off earnings per share, according to estimates from Citigroup Inc. strategists led by Beata Manthey. Earnings are expected to rise 7% in Europe and 15% in the US this year, based on current projections.
Automakers would likely see a significant impact, as companies like Volkswagen AG have manufacturing bases in Mexico. The German carmaker is considering setting up a production facility in the US for its Audi and Porsche brands in response to the tariffs, Handelsblatt reported this week. The Stoxx Automobiles & Parts Index has gained about 5% this year, slightly underperforming the Stoxx 600 after losing more than 12% in 2024, making it the worst performer among the index’s 20 main sectors.
Karen Georges, a fund manager at Ecofi in Paris, said that she recently bought shares in a US waste management company that has no exposure to a trade war. She also holds German exporters. While these stocks have some US exposure, they don’t have much production there and could benefit as trade tensions ease, she said.
Other European industries to watch include miners, especially steelmakers, as well as makers of alcoholic drinks like Remy Cointreau SA and Pernod Ricard SA, which tend to be sensitive to news on tariffs.
Martin Frandsen, global equities portfolio manager at Principal Asset Management, recommends companies that make money outside of Europe, such as pharmaceutical makers, as well as certain insurance firms whose defensive characteristics and high capital returns make them attractive during times of uncertainty. “In an environment of heightened uncertainty, it pays to be highly selective,” he said.
–With assistance from Michael Msika.
(Updates index moves in fifth paragraph, updates first chart.)
