President Trump’s decision to delay part of his proposed global trade war led to a volatile session on Wall Street on Monday. Major stock indices, which had plunged during early trading hours, managed to somewhat recover by midday. The Dow Jones Industrial Average was down by approximately 150 points or 0.3%.
The tech-heavy Nasdaq dropped 1.2%, and the broader S&P 500 index fell 0.8%. Trump announced over the weekend that starting Tuesday, imports from Canada’s energy sector would face a 10% duty, while goods from Canada and Mexico would encounter 25% tariffs. Imports from China would have a 10% tariff.
These announcements initially caused significant concern in global markets, especially since they indicated a swifter and more considerable escalation than previously anticipated. However, on Monday morning, Trump revealed a one-month pause on tariffs concerning Mexican goods after a “very friendly” phone call with Mexican President Claudia Sheinbaum. Trump shared this update on his Truth Social network and noted that negotiations with Mexico will continue in hopes of reaching a trade deal.
Economists from BNP Paribas had earlier warned that the announced tariff increases could severely impact economic growth and lead to a sharp rise in U.S. consumer prices in the coming months. Shares in American automakers reacted to the news of the tariff pause. While General Motors (GM) and Ford each saw a reduction of about 1% by midday, they had regained some lost ground from the morning losses.
Tesla, however, remained down more than 4%. The President’s tariff threats also had repercussions in Europe.
Tariff pause impacts automaker stocks
The pan-European STOXX 600 index fell by 1%, Germany’s DAX dropped 2%, and the UK’s FTSE 100 index saw a decline of 1%. Trump stated new tariffs on the European Union would “definitely happen” but hinted at the possibility of a softer approach towards the U.K., citing his positive relations with Prime Minister Keir Starmer, though he added that the U.K. “might” still face penalties. The markets await further developments as trade negotiations continue.
The average $25,000 price of a car imported from Mexico or Canada could jump $6,250 if the tariffs take effect, according to an analysis by S&P Global Mobility. Importers would likely pass most of any increase in their costs along to consumers. Michael Robinet, Vice President of Forecasting at S&P Global Mobility, said, “The proposed tariffs could not only inflate vehicle prices but also disrupt production schedules, with estimates suggesting a potential 30% decrease in production for high-exposure vehicles once tariffs are enacted, even if only for the short-term.”
Ford Motor Company CEO Jim Farley said in an earnings call with analysts that a prolonged period of higher tariffs would wipe out the company’s profits, drive up vehicle prices, and slow economic growth.
“There is no question that tariffs at a 25% level from Canada and Mexico, if they’re protracted, would have a huge impact on our industry with billions of dollars of industry profits wiped out and adverse effects on U.S. jobs,” Farley said. “Tariffs would also mean higher prices for customers.”
General Motors CEO Mary Barra also alluded to the effects tariffs could have on its business, saying the company is considering restructuring its supply chain to cushion the blow from tariffs. “We’re doing the planning and have several levers that we can pull,” Barra said in an earnings call.
Roughly 3.6 million light vehicles were imported into the U.S. from Canada and Mexico in 2024, accounting for 22% of all car sales nationwide, according to S&P Global Mobility. Mexico is the largest source of U.S. light vehicle imports, representing about 15% of sales. Marcus Noland, trade policy expert at the Peterson Institute for International Economics, said, “The tariffs would really hit the automobile industry hard because the motor vehicle industries of the U.S., Mexico, and Canada are very intertwined.
Parts will cross the border seven to eight times before final assembly, and the tariffs are applied every time a part crosses — so costs would go up very quickly.”
While Trump’s tariffs on Canada and Mexico might increase U.S. car prices and disrupt the automobile industry, the long-term impact remains uncertain. Industry leaders are considering various strategies to mitigate these effects, but significant challenges persist.
