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In a significant escalation of trade tensions, U.S. President Donald Trump recently unveiled substantial tariffs targeting the nation’s three largest trading partners. Investors are now grappling with the implications of what could develop into a global trade conflict.
As part of this announcement, Canada and Mexico will see a 25% tariff levied on their exports to the U.S., while Chinese products will be subjected to a lower tariff of 10%. In response, Canada has acted swiftly, implementing an equivalent 25% tariff on approximately $155 billion worth of U.S. goods.
Trump signaled that the European Union might be the next target, with potential tariffs also being considered for the United Kingdom.
Despite Trump’s warnings about tariffs throughout his campaign, analysts like Jim Reid at Deutsche Bank noted that the market had been largely underestimating the associated risks. Following the announcement, they predict a market reaction that will be marked by considerable shock.
Several short- to medium-term ramifications are anticipated, including a deceleration in global economic growth—particularly in countries with substantial manufacturing bases—as well as an uptick in oil prices, increased costs for American consumers, and sustained high interest rates in the U.S., which could strengthen the dollar.
Automotives
The automotive sector is poised to be one of the most heavily impacted areas as these escalating trade tensions unfold. Major car manufacturers and parts suppliers that rely on international imports for their operations may face significant disruptions.
For instance, Germany’s Volkswagen operates Mexico’s largest car factory, which primarily produces vehicles for the U.S. market. RBC Capital Markets has estimated a potential 9% reduction in Volkswagen’s earnings as a result of the new tariffs. Similarly, Stellantis, which encompasses brands like Chrysler and Jeep, could see up to a 12% earnings hit, given its substantial operations in Mexico.
Immediately following the tariff announcement, the stock market reacted, with European automakers listed on the Stoxx 600 index experiencing a 3.4% decline, and parts suppliers such as Valeo and Forvia also suffering losses amid concerns of a prolonged sector slowdown.
Chip Firms
Companies involved in the production of chips and semiconductor equipment are also bracing for potential repercussions from the tariffs, particularly due to their extensive global supply chains that include manufacturing facilities in both Mexico and China.
Leading the industry, Taiwan Semiconductor Manufacturing Co (TSMC), the largest chipmaker worldwide, collaborates with many U.S. tech firms like Apple and Nvidia to supply semiconductors. Another key player, ASML—responsible for producing advanced lithography equipment—services a variety of chipmakers globally, shipping crucial machinery to countries such as the U.S. and South Korea.
Analyst Susannah Streeter from Hargreaves Lansdown suggested that the recent developments will likely exacerbate the existing high tensions within the semiconductor sector, with companies like Nvidia relying on imported components for their technology, including those used in artificial intelligence data centers.
Consumer Goods
The impact of these tariffs will likely ripple through to everyday consumers in the U.S., with price increases expected on a wide range of household and leisure items sourced from abroad—ranging from furniture and electronics to apparel, gaming consoles, smartphones, and toys.
Additonally, U.S. products exported to countries implementing retaliatory tariffs will also be affected, creating a complicated landscape for U.S. consumer goods firms that conduct cross-border trade.
One notable example is Diageo, the global drinks company, which is already facing challenges due to sluggish demand in North America. As a significant portion of its profit is derived from U.S. operations, tariffs pose a substantial risk, especially considering that approximately 70% of its U.S. sales consist of imported products, including Canadian whiskey and Mexican tequila. Diageo’s earnings report is slated for Tuesday, and many will be watching closely.
Chinese E-Retailers
Chinese online retailers could face the most severe consequences due to the new tariffs and revisions to U.S. market access, according to Morgan Stanley’s analysis. Popular platforms such as Temu, Shein, and AliExpress are expected to bear the brunt of these changes.
This shift comes with the termination of a trade exemption known as “de minimis,” which previously allowed for duty-free shipments of packages valued under $800 into the U.S. U.S. officials have argued that this exemption provided an unfair advantage to Chinese e-commerce firms, citing safety concerns around inadequate documentation and inspections.
According to U.S. Customs and Border Protection, more than 1.3 billion de minimis shipments were processed in 2024 alone. With the elimination of this exemption, the costs for high-volume, low-cost items from Chinese online retailers are expected to rise, which could dampen consumer demand.
Basic Materials and Industrials
The basic materials sector, which includes companies that explore and process metals, plastics, wood, and other primary materials, is also anticipated to experience challenges due to a weaker outlook for global growth. Dan Boardman-Weston, CEO at BRI Wealth Management, highlighted that the economic effects could be particularly pronounced in Canada, where analysts at Scotiabank noted that retaliatory tariffs from the U.S. represent the “worst possible scenario.” Factors such as high debt levels, stunted productivity, and limited trade diversification heighten Canada’s vulnerability, particularly for its already-struggling softwood lumber sector.
Green Energy
Renewable energy firms worldwide may face hurdles as well, with China, Canada, and Mexico serving as vital centers for the production of machinery and components used in solar, wind, and other sustainable technologies. The American Clean Power Association has expressed concerns regarding the tariffs’ adverse effects on the green energy sector, emphasizing the increased costs likely tied to machinery imports from Canada and Mexico.
More broadly, analysts from Morningstar caution that tariffs can hinder the broader energy transition. They posit that since tariffs fundamentally act as consumer taxes, they could result in heightened inflation and interest rates, while also slowing economic growth—factors that threaten the profitability of solar and wind projects, which depend heavily on long-term financing.
— Contributors to this coverage include Ganesh Rao, Michael Bloom, Annie Palmer, Sam Meredith, and Ryan Browne from CNBC.
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