President Trump announced a tariff of 25% on imported steel to the U.S. yesterday, surprising not only market indexes but his own White House advisors. His intentions were very clear: "We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!" the President tweeted.
But economists and traders took the news quite differently, sending the Dow plummeting 500 points on the news. Trump's announcement, which also included a 10% tariff on aluminum imports, sent question marks ricocheting around not only the steel industry but geopolitical certainties in the Western hemisphere - most importantly, NAFTA.
The North American Free Trade Agreement would be immediately affected by these tariffs, as Canada is the biggest steel and aluminum importer to the U.S. in the world (16% steel, 43% aluminum). Currently, our closest ally and trading partner hopes to work out certain exemptions - or at least reassurances - regarding these purported tariffs, that they won't be held to such an extreme new standard. This is especially considering there's no secret who Trump's target of these tariffs really is: China.
Since the early days of his presidential campaign, Trump has said he'd get tough with China, who he claims has taken advantage of trade with the U.S. over decades of non-action from previous administrations. So these tariffs are clearly a way Trump sees to help neutralize Chinese interest on steel imports. Besides this, obviously import tariffs would help domestic steel makes, like Nucor NUE and U.S. Steel X greatly.
However, though the steel industry in this country hires roughly 140K workers, that's a drop in the bucket compared to the 6.5 million workforce engaged in steel usage. Chief among these is the automobile industry, which relies greatly on steel and aluminum products. Higher prices for these materials would lead to higher prices for cars and trucks, and this sort of chain reaction through the economy is precisely why the market is having a problem digesting this news.
Currently, the Dow is down another 200 points in today's pre-market, the Nasdaq is 80 points off its Thursday close and the S&P 500 down 20 points. It's unlikely this issue will enjoy a swift correction in normal trading hours, so as long as this remains the main pressure on stocks today, we expect to close in the red again to end the week.
Q4 Earnings Sweep-Up
Quickly, both J.C. Penney JCP and Foot Locker FL are also trading down ahead of today's opening bell. Though both companies beat bottom-line estimates, they missed on revenue projections and disappointed on comps and guidance.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Foot Locker, Inc. (FL): Free Stock Analysis Report
J.C. Penney Company, Inc. Holding Company (JCP): Free Stock Analysis Report
United States Steel Corporation (X): Free Stock Analysis Report
Nucor Corporation (NUE): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.