Breakfast News: Tariff Impact
April 3, 2025
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Wednesday's Markets |
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| S&P 500 5,671 (+0.67%) |
| Nasdaq 17,601 (+0.87%) |
| Dow 42,225 (+0.56%) |
| Bitcoin $86,535 (+1.88%) |
1. Tariffs Steeper Than Anticipated
President Trump announced the highest U.S. tariffs in a century, with a baseline 10% tariff on all imports set to come into effect on April 5, and the additional reciprocal tariffs on specific countries going live next Wednesday. S&P 500 futures dropped over 3%, with Russell 2000 futures falling as low as 5%. TMF Chief Investment Officer Andy Cross commented "The rub is in what actually gets negotiated down over the next month or two. [POTUS is] a deal–maker so he's looking to deal."
- The EU is "preparing for further countermeasures, to protect our interests and our businesses if negotiations fail": European Commission President Ursula von der Leyen responded to the 20% tariff on the European Union, while China – which now faces an effective tariff rate of 54% – has promised "resolute countermeasures." More than 20% of exports from the EU go to the U.S., with Germany particularly affected as it exports €161 billion.
- "If you don't retaliate, this is the high-water mark": Treasury Secretary Scott Bessent urged nations impacted not to fight back, indicating there would be escalation if retaliatory measures were applied.
2. Shockwaves Felt Around the World
The 24% levy imposed on Japan led to the Nikkei 225 falling 2.7% Thursday. With Vietnam taking on a 46% levy, it could stem the outflow of manufacturing from China to other Asian nations.
- 90% of imports from Mexico and almost 80% from Canada entered the U.S. duty free last year: The two nations avoided additional new duties, but Canadian Prime Minister Mark Carney promised to oppose the previous orders "with purpose and with force," with countermeasures set to be outlined today.
- Nearly a third of footwear imports in the U.S. come from Vietnam: The 46% tariff on Vietnam will be felt sharply, as companies including Nike (NKE -1.45%) – down more than 8% in pre-market trading – and Steve Madden (SHOO -1.75%) face rising costs of production.
3. Some of the Hardest-Hit Stocks
On Holding (ONON 0.47%) fell over 15% ahead of market open, with the majority of shoes produced in Vietnam. Wayfair (W -0.31%) slid over 14%, with the business heavily exposed to production from Vietnam, China, and other tariffed nations. Deckers (DECK -1.42%) – down 11% – has 68 supply chain partners in Vietnam, second only to its 125 suppliers in China.
- Duties hitting when consumers are becoming more value conscious: VF Corp (VFC -1.69%) has 55% of exposure to these two countries. American Eagle (AEO -0.40%) CFO noted last month that it had "high-teens to 20%" of production in Vietnam and China, too.
- Supply chain impacts for household names: Caterpillar (CAT -0.19%) is directly impacted by steel and aluminum tariffs, as well as materials sourced from China. A Boeing (BA 0.94%) 737 needs over 2,000 parts sourced from 700 suppliers around the globe, many of whom will now be tariffed.
4. Exemptions Worth Noting
The drug sector was exempt from the measures imposed by President Trump for the moment, a small win for Big Pharma.
- "The pharmaceutical companies are going to come roaring back": Future tariffs on the sector remain a possibility, with the administration keen to bolster domestic manufacturing.
- Complexities in the supply chain: Semiconductors are currently exempt from levies, with the president indicating these products will be addressed separately in the near term.
5. 25% Levies Now in Effect
A 25% tariff imposed on imports of automobiles and automobile parts came into effect at midnight. The tariffs will be added on top of existing duties.
- China, the U.S., and Cuba are major purchasers of crude oil from Venezuela: Goods from countries that purchase Venezuelan oil and gas are now subject to a 25% tariff.
- One-stop shop: Click here for the full list of reciprocal tariffs and other trade actions from the Trump administration.
6. Foolish Fun
Andy Cross says he's "more than ever ... buying/owning businesses at good relative valuations with a 5-year time horizon" and "not jumping in and out of positions."
Which stocks on your watch list are today trading at valuations you'd be happy to buy into, which might've been too expensive yesterday? Discuss with friends and family, or become a member to hear what your fellow Fools are saying.
