Trump’s announcement that the United States will impose a 25% tariff on steel imports and a 10% tariff on aluminum imports has become the latest cause of concern for the U.S. economy and Wall Street. The tariffs are likely to result in an increase in raw material cost for manufacturers that use these metals.
Both steel and aluminum are vital to the production of cars and trucks sold in America and would push up the sale prices of those vehicles considerably. The American Automotive Policy Council believes that the change would put the U.S. auto industry at a "competitive disadvantage."
However, the price hike won’t be the same for all. CNBC reported that General Motors (NYSE:GM) sees only a modest impact because it buys 90% of “steel for U.S. production from U.S. suppliers." On the other hand, Honda Motor Co (NYSE:HMC) said that “imprudent tariffs imposed on imported steel and aluminum would raise prices on both domestic and imported products, thus causing an unnecessary financial burden on customers.”
In this situation, First Trust NASDAQ Global Auto Index Fund CARZ should be monitored closely. However, since the fund invests only 19.67% in the United States, severe threat to the product is unexpected (read: ETFs in Focus Post Automobile Earnings).
Solar projects, wind turbines and energy storage units are also likely to be pricier. The tariff could result in a hike in the cost of offshore platforms and pipelines. In any case, the Trump administration's 30% tariff on imported solar cells and modules was put into effect this year (read: Trump's Import Tariffs: ETF & Stocks in Focus).
Now with extra price increases on steel and aluminum, “which are used in ground-mount and rooftop solar racking systems,” the sector could be hit hard. Alternative ETFs including Guggenheim Solar ETF (LON:TAN) and First Trust ISE Global Wind Energy Index Fund (LON:FAN) should thus be followed with extra caution (read: Alternative Energy ETFs to Gain From First Solar (NASDAQ:FSLR) Q4 Results).
U.S. aerospace industry thrives on steel and aluminum imports to construct aircraft. About 80% of an aircraft is made of aluminum. Companies like Boeing Company (NYSE:BA) , Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC) may come under pressure. Aerospace and defense ETFs like iShares U.S. Aerospace & Defense ETF (HM:ITA) and SPDR S&P Aerospace & Defense (NYSE:XAR) ETF (LON:XAR) may also feel the pinch.
Aluminum foils are used to wrap chocolates. So, the tariff could lead to high costs for Hershey Company (NYSE:HSY) HSY and Mondelez International Inc (NASDAQ:MDLZ). MDLZ. "Such a broad and sweeping order could have a negative impact on the entire U.S. economy, potentially costing U.S. jobs and ultimately, hurting American consumers through higher prices for everyday products," according to the Hershey spokesman, as quoted on npr.org.
Last but not the least, how can investors forget the beer industry? Imported aluminum is used to make beer cans. Companies like Molson Coors Brewing Company (NYSE:TAP) , Anheuser-Busch Inbev SA (NYSE:BUD) , Constellation Brands Inc (NYSE:STZ) and Diageo (LON:DGE) Plc (NYSE:DEO) may face the rising cost issue. At the same time, the announcement puts Spirited Funds/ETFMG Whiskey & Spirits ETF WSKY in focus.
Along with most market watchers, we too believe that companies will try to pass on some cost escalation to consumers. As a result, consumer ETFs like iShares U.S. Consumer Services ETF IYC may get slightly hurt.
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