US Tariffs and Market Responses
After the U.S. excluded smartphones and other electronics from tariffs it imposed on China over the weekend, President Donald Trump’s decision to waive existing auto-related tariffs on Monday has added new uncertainty to the fickle trade policy. That sent big tech and auto stocks higher. Trump’s aggressive tariffs, which aim to raise the customs rate on imported goods by 25%, have caused a sell-off in U.S. assets such as stocks, the dollar and Treasuries. But the market rebounded on Monday, while the broader S&P 500 index remains down about 8% since the start of the year.
Investors have begun to question America’s long-held safe haven status, causing both business and consumer confidence to wane. The negative response forced the White House to back down, but Trump reiterated over the weekend that more tariffs were on the way. Speaking at the White House on Monday, he said he was considering changes to the 25% tariffs on cars and car parts imported from Mexico, Canada and other countries. Trump stressed that these tariffs could increase the cost of a car by thousands of dollars, and said automakers “need some time because they’re going to build the vehicles here.”
NORTH AMERICA FREE TRADE AGREEMENT
U.S. automakers have developed a highly integrated supply chain, including shipping vehicles across borders, thanks to the ratification of the renegotiated North American Free Trade Agreement during Trump’s first term. Shares of General Motors and Ford Motor closed up 3,5% and 4,1%, respectively, on Monday, a positive influence on investors. “There is a growing awareness that across-the-board tariffs on parts could undermine our goal of building a thriving and growing U.S. auto industry, and many of these supply chain transitions will take time,” Matt Blunt, president of the American Automotive Policy Council, said in a statement on Monday.
The exemptions announced this weekend suggest the White House is increasingly aware of the burden that tariffs on smartphones, laptops and other popular electronics could have on consumers fearful of inflation. But its promise of more tariffs on other key industries, such as semiconductors, next week continues to create uncertainty for businesses. On Monday afternoon, the White House said it had opened an investigation into whether pharmaceutical and semiconductor imports pose a threat to national security, which could lead to tariffs on those products.
STATEMENT FROM MORGAN STANLEY
Trump and other administration officials, such as Commerce Secretary Howard Lutnick, have said the tariffs are necessary to boost American manufacturing and have emphasized that the White House’s tax plans are critical. But the import tariffs, which BlackRock estimates reached 20% after tariffs on technology imports were rolled back on Monday, have hurt business and consumer confidence. Luxury goods maker LVMH reported a decline in U.S. sales in the latest quarter, while executives said it may have “some capacity” to increase production, despite significant problems at its U.S. facilities.
Reciprocal tariffs between Washington and Beijing have sent Big Tech stocks tumbling in the past two weeks, triggering fears of higher costs, slumping consumer demand and the worst supply chain disruption since the Covid-19 pandemic. Apple rose 9% on Monday after a 2,2% decline in the past two weeks. Analysts have warned that its flagship iPhone, which is mainly made in China and imported to the U.S., is at risk of significant price increases if significant tariffs persist.
HEAVY TAX OF 145 PERCENT!
Trump is continuing a hefty 20% tariff on China, including a 145% tariff imposed on fentanyl in February. The exemptions cover 20 categories, including computers and laptops, as well as semiconductor devices, memory chips and flat-panel displays. Analysts say the exemptions overall give companies more time to plan where the tariffs will land. Other consumer-facing companies, such as computer hardware makers HP and Dell Technologies, gained 2,6% and 4% respectively, but chip giant Nvidia fell. Nvidia said on Monday it would increase U.S. spending on artificial intelligence development facilities, which it blamed on Trump’s tariff threat. European and Asian chip stocks, including major Asian suppliers to companies such as Apple, also rose. Top iPhone assembler Foxconn gained 3%, contract laptop maker Quanta gained 5,8% and AI server maker Inventec gained 4,1%.
