Detroit automakers face stock price declines as Trump’s trade war and tariff concerns disrupt the market
On Monday, auto stocks took a significant blow as Wall Street reacted to the troubling news surrounding President Trump’s trade war.
By Monday afternoon, there appeared to be some positive developments as President Trump announced a halt to tariffs on Canadian imports for at least a month, as well as a similar pause for Mexican imports.
While auto stocks may find some relief, uncertainties regarding essential trading partners remain prevalent.
General Motors shares dropped more than 6%, trading at $46.46 by 9:45 a.m. Monday, down $3 per share. Meanwhile, Ford Motor Company experienced a nearly 4% decline, priced at $9.69 that morning, down 39 cents per share.
Stellantis shares traded at $12.43, a decrease of 70 cents or about 5.33% within the initial 20 minutes of trading that Monday.
The U.S. auto industry is intricately linked, with a vast network of auto parts being transported across borders with Canada and Mexico. Proposed tariffs could severely impact vehicle prices, which are already becoming increasingly unaffordable for average consumers.
Not surprisingly, the downturn in auto stocks outpaced the broader stock market, which itself experienced a steep decline. The Dow Jones Industrial Average was down 1.47% shortly after 10 a.m., losing 656.89 points to settle at 43,887.77 points.
Monday offered a glimpse of possible future trends as anxiety about a potential trade war escalated. However, it is essential to acknowledge that the future of tariffs with major trading partners—Canada, Mexico, and China—remains uncertain.
The extent of the impact is still open for discussion, even though the Wall Street atmosphere hinted at a level of panic not seen in a while. By later in the day, the situation began to stabilize somewhat.
Just before 10:30 a.m., auto stocks showed signs of recovery; GM was down approximately 3%, Ford down around 1.4%, and Stellantis down roughly 3%.
Before 10:30 a.m., the Dow was down around 0.65%. By 12:30 p.m., this loss decreased to only 0.27%.
When trading concluded, the Dow dropped 122.75 points, or 0.28%, finishing the day at 44,421.91 points.
GM ended at $47.90 per share, down $1.56 or 3.15%.
Ford closed at $9.89 per share, sliding 19 cents or 1.88%.
Stellantis finished at $12.62 per share, a drop of 51 cents or 3.88%.
As reports emerged regarding tariff relief linked to Mexico and potential discussions with Canada, auto stocks seemed to experience some recovery.
CNBC reported early Monday that negotiations with Canada were scheduled to occur that afternoon.
CBC News noted that Prime Minister Justin Trudeau spoke with Trump early Monday about the trade conflict.
Later that day, Trump and Trudeau spoke again shortly after 3 p.m. Some speculated that Trump could delay the Canadian tariffs following their conversation. Just before 5 p.m., Trudeau announced temporary relief from tariffs, with Trump confirming a similar statement.
Trudeau mentioned Canada’s commitment to establish a position to combat fentanyl smuggling and promised ongoing monitoring at the border, according to Reuters.
The previously planned 25% tariff on Canadian goods was set to commence on Tuesday, while energy resources from Canada would face a lower 10% tariff.
After 10:30 a.m., CNBC reported Trump had put the new tariffs on Mexico on hold for a month. Mexico’s President Claudia Sheinbaum announced via social media that the country would strengthen its northern border to intercept drug trafficking, especially fentanyl. Mexico agreed to deploy 10,000 National Guard troops to support U.S. border security, while Trump committed to curbing the outflow of American weapons to Mexico.
Trump confirmed this month-long agreement with Mexico on social media early that morning.
Later, Trump informed reporters that discussions with China would be happening within 24 hours.
Investors must recognize that uncertainty is running high in Washington, which is now mirrored on Wall Street, as Trump swiftly alters the status quo, leading to unpredictable changes.
On Monday morning, the initial recovery displayed on Wall Street suggested the markets were performing better than anticipated, according to David Sowerby, managing director and portfolio manager at Ancora Advisors in Bloomfield Hills.
However, he cautioned, “Tariffs could indeed trigger a market correction.”
Sowerby projected a possible 5% to 7% correction in the market, noting that fluctuations of about 5% typically occur twice a year, with a full 10% correction happening once annually.
For investors, Sowerby added, it is essential to understand their holdings and the exposure those companies have toward the three major trading partners of the U.S.—Canada, Mexico, and China.
According to basic economic principles, Sowerby pointed out that tariffs function as a consumer tax, and Trump’s tariffs would follow this same pattern.
Why Trump declared swift action on tariffs
On February 1, the White House announced it was “responding to an emergency situation.”
“The significant threat from illegal immigrants and drugs, including the deadly fentanyl, qualifies as a national emergency under the International Emergency Economic Powers Act,” the White House statement declared.
Trump aimed to enforce a 25% tariff on imports from Canada and Mexico, as well as a 10% additional tariff on imports from China. Energy resources from Canada were also set to incur a 10% tariff, according to the White House’s information.
Trade war under fire
The Wall Street Journal published a critical editorial condemning Trump’s 25% tariffs on Canada and Mexico, labeling it “The Dumbest Trade War in History.”
The editorial introduced the term autarky into the discussion.
“Mr. Trump sometimes appears to believe that the U.S. should not import anything at all, that America could function as a fully closed economy, producing everything domestically,” the editorial stated.
“This idea, known as autarky, is neither the world we inhabit nor one we should aspire to, as Mr. Trump may soon realize.”
Such levels of protectionism and disdain for trade are recognized by global leaders as detrimental to economic growth, prompting Wall Street to closely monitor the developments.
Potential consequences of a trade dispute on the U.S. auto market
Michigan’s economic forecast hangs in the balance as prolonged high tariffs, especially on the auto industry, threaten to increase vehicle costs significantly.
Gabriel Ehrlich, director of the University of Michigan’s Research Seminar in Quantitative Economics, estimated that the higher tariffs announced on February 1 could raise production costs for vehicles in the U.S. by approximately $1,200 to $1,500 per car or truck.
“We have encountered estimates suggesting even higher amounts,” Ehrlich noted.
Moreover, he pointed out that the tariffs could lead to price increases of $8,000 to $10,000 for vehicles imported from Canada and Mexico. These costs would likely be shared across producers, dealers, and consumers along the supply chain.
“Considering the distribution of imports in the auto sector,” Ehrlich mentioned, “it seems that the announced tariffs on China would minimally impact Michigan’s economy, those on Canada would have more significant effects, and tariffs on Mexico would exert the most influence.”
Ehrlich also indicated the possibility of avoiding the impending tariffs.
“There’s a chance that Mexico, Canada, and China might reach an agreement with the U.S. to avert the tariffs,” he said.
“Even if the tariffs are ultimately implemented, they might be short-term, and there could be substantial exemptions for specific sectors or companies. If the tariffs prove to be long-lasting, we would expect their effects on Michigan’s economy to increase over time,” concluded Ehrlich.
Tariffs ‘even larger’ than expected
One alarming aspect is how swiftly Trump moved forward with his anticipated tariffs after taking office on January 20.
“The announced increases in tariffs were even steeper and implemented faster than we had anticipated,” stated a report released Monday by BNP Paribas.
As a result, consumers in many markets are expected to see prices “rise sharply in the coming months, while tariffs may hinder economic growth,” as noted in the report from the French multinational banking and financial services firm.
Even if these tariffs prove to be temporary, the report indicated that their introduction ahead of negotiations raises potential economic risks.
At the time, it was assumed that negotiations would prevent tariffs on Canada and Mexico from taking effect.
Analysts suggest that the likelihood of a continuing trade war is increasing, but further discussions in the coming days may shed light on potential resolutions.
(This story has been updated to include new information.)
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.
