Global policymakers and Wall Street analysts have been bracing for massive trade barriers from the new Trump administration. But it focused more on the domestic front in the first week in power, leaving the global trade landscape largely unchanged.
President Donald Trump's tariff threats range from universal levy on imported goods to ones tailor-made for specific sectors as well as countries, and have the potential to dictate the path of inflation, economic growth and stock market performance.
He has plans to impose 25% tariff on Mexico and Canada, largest trade partners of the U.S., on Feb 1, saying they may be necessary as retaliation for migration and fentanyl trafficking.
Canada mainly exports crude oil and other energy products along with cars and car parts as part of the North American auto manufacturing chain. Mexico exports various goods in the industrial and auto sectors.
Here is what top Wall Street brokerages say on the likely impact of U.S. tariffs on inflation, economic growth and earnings:
U.S. COMPANIES AND PROFITS
Analysts said surcharges on imports into the U.S. could hit sectors relying on supply chains spread across North America and China.
- Trump's tariff threats against Canada, Mexico and China could amount to a 2.8% drag on the S&P 500's (.SPX) profit, if fully enacted, with the materials and discretionary sector most at risk, Barclays analysts said.
- Targeted tariffs may have a less impact on equity markets compared with more broader surcharges, Citigroup said. A small import price shock in a narrow tariff scenario is likely to result in a 50 basis points compression in S&P 500 gross margin, while a broader tariffs could see margins shrink by 250 bps.
- Tariffs on Mexico could hurt appliance distributors such as Whirlpool (WHR.N), BofA Global Research said. About 40% of the U.S. appliance industry's sales are imports compared with 20% for Whirlpool, with a bulk of it from Mexico.
Construction products companies Masco (MAS.N) and Fortune Brands (FBIN.N) have some sourcing exposure to China. But they also have dual suppliers for many products and could offset some the tariff hurdles with price hikes, BofA said.
Builders FirstSource (BLDR.N) could benefit in the short-term from tariffs on Canadian lumber imports, but that would likely be offset by lower starts from homebuilders.
- Automakers Ford (F.N) and Tesla (TSLA.O) are expected to take a big hit if tariffs are imposed on Canada and Mexico as the two countries account for nearly one-fifth of the value of U.S. vehicle consumption and production, Goldman Sachs said.
The brokerage expects a greater chance of tariffs on China than on Canada and Mexico, while Royal Bank of Canada (RBC) thinks any tariff hike could exclude automakers.
- RBC expects surcharges imposed on Mexican imports could prove to be a problem for General Motors (GM.N), adding that production could shift to the U.S.
- Profit margins of exporters could be hit, according to BlackRock, if inflation causes elevated interest rates and sets off a dollar rally to its 2022 peak.
INFLATION
Analysts expect inflation pressure from tariffs to keep the Federal Reserve hawkish on monetary policy, making it more expensive for companies to borrow and causing high inflation.
- Barclays strategists said the proposed tariffs could lift the personal consumption expenditure index, the Fed's preferred inflation gauge, by 35-40 basis points on a yearly basis over a 12-month period.
- Goldman Sachs estimates the proposed tariffs, if implemented, would boost the U.S PCE index, excluding volatile items such as food and energy, by 0.9%.
- Capital Economics said the universal tariff of 10% and a China tariff of 60% will add about 1 percentage point to U.S. consumer price index. If Trump followed through on his threats of additional country-specific tariffs, inflation might rise by about 2 percentage points.
