Investors have swiftly moved from yesterday’s dour fiscal event in the UK, with US President Donald Trump swiftly stealing back the limelight from UK chancellor Rachel Reeves.
The gold price rose and stocks fell after Trump said he would impose a 25 per cent tariff on “all cars that are not made in the United States”, with the levies due to take effect on 2 April. Shares of carmakers led the declines – Fiat owner Stellantis dipped more than 5 per cent in Milan, while VW, Porsche, Mercedes-Benz and BMW notched declines of 4-5 per cent early on. Aston Martin fell 6 per cent. Japanese carmakers such as Toyota and Honda fell more than 2 per cent overnight. How individual stocks are hit partly reflects how much they export to the US, but there is also just a broad risk-off move across the market.
It was not just European and Japanese names. General Motors (which makes many of its vehicles in Mexico) fell about 7 per cent in the pre-market, and Ford fell 4 per cent. Along with Chrysler-owner Stellantis, Bernstein estimates a 60 per cent average decline in free cash flow for the Big Three Detroit carmakers. Everyone gets hurt. Even Trump’s best bro Elon Musk’s Tesla hit the skids – down more than 5 per cent yesterday and off another 2 per cent in the pre-market.
The declines dragged on the indices in Europe on Thursday morning – auto exports are important to Europe and the UK. But broader fears about the economic impact of escalating trade wars are the driver. The FTSE 100 and shares in Paris are down 0.5 per cent, but as you’d expect, the Dax is weaker, down 0.9 per cent, having pared back some losses as the morning progressed. More cars, more impact on your blue chip index. The UK is hoping for carve-outs: we don’t do manufacturing, it’s all services, is the schtick. New York was hit hard, with tech shares as measured by the Nasdaq falling 2 per cent, with the broader S&P 500 down 1.1 per cent. Tesla and Nvidia led the way down. Future shows the S&P will open flat, but the Nasdaq is expected to keep falling.
And don’t even think about fighting the tariffs, Trump added. “If the European Union works with Canada to do economic harm to the USA, large scale tariffs, far larger than currently planned, will be placed on them both to protect the best friend that each of those two countries has ever had!” he said in a Truth Social post.
Japan’s PM told parliament that “all options will be on the table” in response to car tariffs. Meanwhile, Trump said he would be willing to reduce tariffs on China to get a deal done with TikTok’s parent ByteDance. It’s all about reciprocity. And amid all the clouds and wild swings, we can discern that the direction of travel for tariffs is up.
It was already up before Trump came in – the number of import restrictions in force among G-20 nations has risen 75 per cent since the start of Trump’s first term in 2016, according to data from Global Trade Alert. But, clearly, it’s intensified since Trump took office for a second time.
In the 1930s, when the tariffs and legislation like the Smoot-Hawley Act killed global trade and saw tariffs hit 22 per cent, until the Second World War. After that, the General Agreement on Tariffs and Trade (GATT) helped to lower tariffs to just 3 per cent by 1999, by which time the World Trade Organization had replaced the GATT. Now the WTO is irrelevant, and the latest round could send average tariffs on goods imported back to 18 per cent, according to Fitch Ratings.
By Neil Wilson, an analyst at TipRanks
