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The big news today that is weighing on the markets is that President Trump is going ahead with his plan to impose a 25% tariff on imports from Canada and Mexico and a 10% tariff on imports from China. There was a carve out from the administration that energy resources from Canada will have a lower 10% tariff.

• President Trump says he is taking these actions to hold Mexico, Canada, and China accountable in terms of halting illegal immigration and stopping fentanyl and other drugs from flowing into the US, which he says have created a national emergency, including a public health crisis. As for China, Trump is hoping these moves will force Chinese officials to stem the flow of precursor chemicals to criminal cartels and shut down money laundering by transnational criminal organizations.
• The stock market is heading lower as investors rightly fear the impact these moves will have on the US and world economy. Consumers all around the world have been dealing with inflation in recent years and the fear is that these moves will make inflation worse. Specifically, importers are likely to pass on these higher costs to consumers. And the Fed is watching. They will factor the impact of tariffs into rate decisions in the coming year and they will be more likely to hold off on rate cuts, which the stock market does not like.
• These moves will affect many industries. The US is a big importer of lumber from Canada, so this could increase prices for new homes. It is not just new homes, prices for containerboard are likely to rise. This is used in all types of food containers, so consumers may feel the pinch there. Aluminum is another big industry likely to be impacted, which may affect everything from beverage/food cans to appliances to aerospace suppliers. Mexico is a big supplier of auto parts, appliances, avocados, medical instruments, fruits/vegetables, beer etc. Canada and Mexico are also major suppliers of plastics, which will impact all types of industries.
• Some industries will benefit. Steel producers, in particular Nucor (NUE) have been complaining about cheap imports from China in recent quarters. Even Cleveland-Cliffs (CLF), which guided Q4 revs below consensus this morning, praised the decision on tariffs. The problem is that while tariffs will help a few industries like steel producers, there are many more steel-consuming industries that will pay higher prices and pass that on to consumers.

Overall, it is difficult to say how long the tariffs will be in place. President Trump is known for changing positions pretty rapidly. Or if the economic impact and stock market reaction gets too big, he could get some concession from these countries then claim a win and reverse course, similar to what happened with Colombia last week. The market is lower on the news, but stocks probably would have reacted even more harshly if there was certainty they would last a long time. We suspect investors are thinking these may be more of a negotiating tactic and possibly shorter term in nature. Note: Soon after we finished writing, Trump announced a one month delay with Mexico.