Factbox: Wall St gears up for fallout from likely tariffs on Canada and Mexico

Masco

31/01/2025 11:19

By Johann M Cherian and Pranav Kashyap
       Jan 31 (Reuters) - 
    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.

 (Reporting by Johann M Cherian in Bengaluru)
 ((mailto:johann.mcherian@thomsonreuters.com;))