Wall Street is bracing for potential repercussions as new tariffs imposed by the Trump administration on imports from Canada and Mexico take effect on March 4, 2025. Initially postponed by a month, the move has raised concerns about economic impacts across multiple sectors.
Commerce Secretary Howard Lutnick confirmed the tariffs will be implemented but noted President Donald Trump will decide if the proposed 25% levy stands. Analysts believe the new tariffs could significantly affect earnings forecasts for companies.
According to Goldman Sachs, the announcements are expected to reduce S&P 500 earnings per share (EPS) forecasts by about 2% - 3%, indicating broader market volatility. Each 5 percentage point increase in customs duties could lead to similarly dire reductions, with Barclays analysts warning of up to a 2.8% decline on S&P 500 earnings if the measures are enforced fully.
"The tariffs could increase the personal consumption expenditure (PCE) index by 35-40 basis points year-on-year over the next 12 months," said Barclays strategists. This surge poses questions about inflationary pressures and the potential for rising consumer prices.
The automotive sector stands to suffer particularly severe effects, with Bernstein analyst Daniel Roeska estimating up to $40 billion annually added costs due to tariffs, translating to roughly a 7% increase per car. Almost one-fifth of the value of U.S. automotive production and consumption originates from Canada and Mexico, making these countries' products integral to domestic manufacturers.
RBC analysts expressed concern for General Motors, indicating the surcharge on Mexican imports could force production shifts back to the United States, impacting supply chains and operational budgets. The automotive industry is not alone; J.P. Morgan issued warnings about the direct impact on European steel mills integrated with U.S. supply chains linked to Mexico and Canada.
"Canada accounts for about 70% of U.S. aluminum imports," stated J.P. Morgan, raising additional alarm for industries heavily reliant on foreign metals.
Meanwhile, European firms, especially from Italy, are already feeling the strain. The anticipated increase of 25% on certain exports has sparked fears of substantial revenue losses—between 4 and 7 billion euros for Italian exporters according to Prometeia. Sectors such as automotive, agri-food, and fashion face the brunt of this financial disruption.
Pirelli, the tire manufacturer, recognizes the need for proactive measures. With 20% of its total global revenue coming from the U.S., the company is implementing modifications to their supply chains to mitigate tariff impacts. Plans include increasing production capacity locally and sourcing more materials from Brazil, deviancing away from reliance on imports from Europe.
"To contain the impact of potential U.S. tariffs, we’re defining a medium-term mitigation plan. This will help achieve our 2025 cash flow objectives and maintain profitability," disclosed Pirelli representatives. The market reacted positively to the announcement, with share prices rising by 4.6% following the news.
The agri-food sector is poised for major disturbances as well, with predictions indicating losses up to 2 billion euros. The Grana Padano cheese, which has seen direct impacts from previous tariffs, is particularly vulnerable. According to Stefano Berni, general manager of the Grana Padano Protection Consortium, analysis of past tariff impositions shows devastating effects. He recounted, "If tariffs are introduced, losses for us would amount to around 100 million per year, translating to approximately 400 million over Trump's term."
With 52% of Grana Padano’s consumption reliant on international sales, the potential for increased tariffs poses dire risks for companies like Berni's. Product aging processes could lead to more significant depreciations due to unsold stock, adding difficulty to already strained margins.
While the repercussions of Trump's proposed tariffs emerge, industry leaders remain hopeful for governmental assistance to mitigate adverse effects. Berni expressed hopes for intervention from the Italian government to protect local industries against the rise of American protectionist measures. "We trust Secretary Giorgia Meloni can convince Trump of the significant dangers these tariffs pose not just internationally but for the U.S. economy itself. It's imperative to forge stronger European synergies to combat the looming threats."
The prospect of heightened tariffs presents substantial challenges with ripple effects across North American industries. With companies strategizing to adapt and minimize losses, the broader economic outlook remains cautious as stakeholders assess the full scope of potential fallout.