On January 31, 2025, in the Oval Office, U.S. President Donald Trump waved around an executive order titled "Unleashing Prosperity Through Deregulation." While doing so, he engaged with reporters about imposing tariffs on Chinese, Canadian, and Mexican imports.
The U.S. stock market was thrown into turbulence on Monday as President Trump initiated actions that could spark a global trade war. Companies with international supply chains, especially those in the automotive, industrial, retail, and beverage sectors, bore the brunt of the market shock.
Over the weekend, Trump imposed a 25% tariff on goods from Mexico and Canada alongside a 10% levy targeting Chinese imports. However, the Mexican tariffs were put on hold for a month following an agreement with Mexican President Claudia Sheinbaum to deploy 10,000 soldiers at the border to curb drug trafficking. Meanwhile, Trump escalated his tariff threats towards the European Union.
Tariffs not only raise costs for transferring goods across borders but could also severely disrupt supply chains and undermine business confidence. Goldman Sachs has cautioned that this latest tariff move might result in a 5% dip in U.S. stocks as corporate earnings take a hit. Let’s delve into the industries and stocks that are most vulnerable:
Automakers
The global automotive industry, highly dependent on North American manufacturing operations, faces significant impacts from these tariffs. Detroit’s giants—General Motors, Ford, and Stellantis—may suffer from disrupted supply chains and might consider relocating production from international sites back to the U.S.
Food and Beverage
Constellation Brands, a major importer of Mexican alcohol, is leading the downturn in alcohol stocks. Retaliating against Trump’s 25% tariffs, Canada has threatened to remove American alcohol from its government-managed liquor stores. Companies like Chipotle Mexican Grill and Calavo Growers might feel the pinch as they rely on avocados imported from Mexico, which could become more expensive.
Retailers
Sportswear companies such as Nike and Lululemon could face challenges due to their heavy use of Chinese imports, including fabrics. Additionally, their considerable presence in China might suffer due to negative trade-war sentiments. Discount retailers like Five Below are among the most affected, given their high dependence on Chinese imports. Although Dollar General’s shares initially dropped with the tariff announcement, they rebounded by the end of Monday, with the company reporting that its direct imports accounted for 4% in 2023. Canadian luxury outerwear brand Canada Goose also finds itself vulnerable.
Railroads
Tariffs could spell trouble for railroad operators due to potential slowdowns in the movement of goods into the United States, impacting their earnings. Companies such as Union Pacific Corporation, moving freight between various U.S. coasts, Canada, and Mexico, along with Norfolk Southern and Canadian Pacific Kansas City, are particularly exposed to tariff impacts.
Chinese E-commerce
Trump’s tariffs further target a trade provision that has boosted the growth of budget online retailers like Temu. This measure, affecting China, Canada, and Mexico, ends the "de minimis" trade exemption that allowed exporters to ship packages under $800 into the U.S. without duties. PDD Holdings’ Temu and Alibaba’s AliExpress will likely lose a significant pricing advantage derived from this loophole.
In light of these developments, it’s important to note that Dollar General had previously clarified its direct imports accounted for 4% in 2023, an update to ensure clarity in this evolving narrative.
