We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties. You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies. In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Inside Trump Tariffs and Their Impact on Sector ETFs
Read MoreHide Full Article
President Donald Trump introduced and enacted a two-step tariff strategy on Wednesday, marking the implementation of his "Liberation Day" plans. A baseline tariff of 10% will be imposed on imports from various countries starting April 5.
Additional duties will be levied on select nations deemed the worst offenders, taking effect on April 9. Trump stated that these extra rates were determined based on both tariff and non-tariff barriers, which have long been criticized.
Evercore ISI estimated that the new weighted-average U.S. tariff rate could rise to 29%—the highest in over a century—once all duties are fully implemented, as quoted on Yahoo Finance. The executive order signed by Trump includes provisions allowing further tariff increases if countries retaliate.
However, Treasury Secretary Scott Bessent, speaking on Bloomberg after the announcement, urged nations not to panic, reassuring that tariffs would not rise further if they refrained from countermeasures.However, several nations, including China, Japan, and South Korea, have already vowed to retaliate.
Focus on Non-Tariff Barriers
Beyond tariffs, Trump's administration also targeted non-tariff barriers such as currency manipulation, value-added taxes, export subsidies, and agricultural restrictions.
While some countries may find it easy to adjust their policies, others face significant challenges. For instance, the European Union's value-added tax system could be difficult to modify, whereas India has already committed to repealing its digital service tax as part of ongoing negotiations.
ETF Areas to Win/Lose
Against this backdrop, we highlight a few sectors and their related stocks and exchange-traded funds (ETFs) that could be under the spotlight amid the escalating trade tensions.
Technology
Bloomberg News reported in early February that regulators in China were considering introducing a formal investigation into Apple’s (AAPL - Free Report) App Store fees and policies. Additionally, China initiated an antitrust investigation into Alphabet (GOOGL - Free Report) .
China is a key production engine for tech gear, including for American companies like Apple that have their products assembled in the country. In 2023, China made up for 78% of U.S. smartphone imports and 79% of laptop and tablet imports, the Consumer Technology Association trade group reported, as quoted on apnews.com.
So, tech ETFs like Technology Select Sector SPDR ETF (XLK - Free Report) and Communication Services Select Sector SPDR ETFXLC may face troubles.
Consumer
As tariff tensions are heating up, consumer stocks could be under pressure. A sweeping new U.S. tariff on products made in China is expected to raise the prices American consumers pay for a wide array of products, from the ultra-cheap apparel sold on online shopping platforms to toys and electronic devices such as computers and cellphones.
Chinese exports of low-value packages jumped to $66 billion in 2023, up from $5.3 billion in 2018, according to report released last week by the Congressional Research Service, quoted on apnews.com. In the United States, Temu and Shein accounted for about 17% of the discount market for fast fashion, toys and other consumer goods.
The new tariffs will also hit third-party sellers on Amazon that import products from China, according to Squali, as quoted on apnews.com. There are high chances, retailers will try to pass on some burden of higher costs to consumers, thereby raising prices.
This is likely to bump up inflation levels in the U.S. economy. Higher inflation in turn will give a boost to bond yields. This, in turn, might push up consumers’ borrowing costs and hurt ETFs like iShares U.S. Consumer Services ETF (IYC - Free Report) and SPDR S&P Retail ETF (XRT - Free Report) .
Rare Earth Elements
China’s Commerce Ministry and Customs Administration revealed that the country is imposing export controls on rare earth elements like tungsten, tellurium, molybdenum and indium, which are crucial for the clean energy transition, with China controlling much of the global supply.
VanEck Rare Earth/Strategic Metals ETF REMX puts 26.87% of weight in China and 26.74% weight in the United States. The latest trade war puts focus on the REMX ETF.
Auto
President Trump announced a 25% tariff on auto imports to the United States. U.S. auto companies earn about sizable revenues from China. According to the U.S. International Trade Commission, the U.S. imports between $15.4 billion and $17.5 billion worth of transportation goods from China annually, as quoted on CNBC.
Moreover, the United States and Mexico share trade ties in the automotive industry. Hence, sectors with the largest Mexico exposure, autos and auto parts, are particularly vulnerable (read: Here's Where Tesla Stands Amid Auto Tariffs: ETFs in Focus).
Per an analyst at JPMorgan, as quoted on Forbes, sourcing about 40% of its vehicles from Canada and Mexico, General Motors (GM) could face a $14-billion hit to its earnings due to the new tariffs, making it the most vulnerable Thus, the ongoing clash will weigh on First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report) .
Steel
The new steel and aluminum duties may benefit the domestic steel and aluminum industries, boosting VanEck Steel ETF (SLX - Free Report) . But then, they could weigh on broader economic sectors. Ryan Young, a senior economist at the Competitive Enterprise Institute, noted that Trump's previous metal tariffs created approximately 1,000 jobs in the steel and aluminum sectors but resulted in the loss of 75,000 jobs in steel- and aluminum-dependent industries, such as automotive manufacturing, construction, and beverages, as quoted on Yahoo Finance.
Beverages and spirits such as tequila, mezcal and beer accounted for a significant portion of U.S. imports, totaling almost $12 billion in trade. Corona beer maker Constellation Brands (STZ) could be at risks. The STZ stock has about 3.67% exposure to Invesco Food & Beverage ETF (PBJ). Moreover, the food and beverage bottling industry may see high-cost pressure due to steel tariffs.
Aerospace
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 (BA), Lockheed Martin (LMT - Free Report) and Northrop Grumman (NOC - Free Report) may come under pressure. Aerospace and defense ETFs like iShares U.S. Aerospace & Defense ETF (ITA - Free Report) may also feel the pinch.
Soybean
The two largest exporters of soybeans, Brazil and the United States, are likely to make up about 85% of the total global import demand. And soybeans are key U.S. exports to China. Needless to say, Teucrium Soybean Fund (SOYB - Free Report) may face the brunt of a retaliatory tariff.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Inside Trump Tariffs and Their Impact on Sector ETFs
President Donald Trump introduced and enacted a two-step tariff strategy on Wednesday, marking the implementation of his "Liberation Day" plans. A baseline tariff of 10% will be imposed on imports from various countries starting April 5.
Additional duties will be levied on select nations deemed the worst offenders, taking effect on April 9. Trump stated that these extra rates were determined based on both tariff and non-tariff barriers, which have long been criticized.
Evercore ISI estimated that the new weighted-average U.S. tariff rate could rise to 29%—the highest in over a century—once all duties are fully implemented, as quoted on Yahoo Finance. The executive order signed by Trump includes provisions allowing further tariff increases if countries retaliate.
However, Treasury Secretary Scott Bessent, speaking on Bloomberg after the announcement, urged nations not to panic, reassuring that tariffs would not rise further if they refrained from countermeasures.However, several nations, including China, Japan, and South Korea, have already vowed to retaliate.
Focus on Non-Tariff Barriers
Beyond tariffs, Trump's administration also targeted non-tariff barriers such as currency manipulation, value-added taxes, export subsidies, and agricultural restrictions.
While some countries may find it easy to adjust their policies, others face significant challenges. For instance, the European Union's value-added tax system could be difficult to modify, whereas India has already committed to repealing its digital service tax as part of ongoing negotiations.
ETF Areas to Win/Lose
Against this backdrop, we highlight a few sectors and their related stocks and exchange-traded funds (ETFs) that could be under the spotlight amid the escalating trade tensions.
Technology
Bloomberg News reported in early February that regulators in China were considering introducing a formal investigation into Apple’s (AAPL - Free Report) App Store fees and policies. Additionally, China initiated an antitrust investigation into Alphabet (GOOGL - Free Report) .
China is a key production engine for tech gear, including for American companies like Apple that have their products assembled in the country. In 2023, China made up for 78% of U.S. smartphone imports and 79% of laptop and tablet imports, the Consumer Technology Association trade group reported, as quoted on apnews.com.
So, tech ETFs like Technology Select Sector SPDR ETF (XLK - Free Report) and Communication Services Select Sector SPDR ETF XLC may face troubles.
Consumer
As tariff tensions are heating up, consumer stocks could be under pressure. A sweeping new U.S. tariff on products made in China is expected to raise the prices American consumers pay for a wide array of products, from the ultra-cheap apparel sold on online shopping platforms to toys and electronic devices such as computers and cellphones.
Chinese exports of low-value packages jumped to $66 billion in 2023, up from $5.3 billion in 2018, according to report released last week by the Congressional Research Service, quoted on apnews.com. In the United States, Temu and Shein accounted for about 17% of the discount market for fast fashion, toys and other consumer goods.
The new tariffs will also hit third-party sellers on Amazon that import products from China, according to Squali, as quoted on apnews.com. There are high chances, retailers will try to pass on some burden of higher costs to consumers, thereby raising prices.
This is likely to bump up inflation levels in the U.S. economy. Higher inflation in turn will give a boost to bond yields. This, in turn, might push up consumers’ borrowing costs and hurt ETFs like iShares U.S. Consumer Services ETF (IYC - Free Report) and SPDR S&P Retail ETF (XRT - Free Report) .
Rare Earth Elements
China’s Commerce Ministry and Customs Administration revealed that the country is imposing export controls on rare earth elements like tungsten, tellurium, molybdenum and indium, which are crucial for the clean energy transition, with China controlling much of the global supply.
VanEck Rare Earth/Strategic Metals ETF REMX puts 26.87% of weight in China and 26.74% weight in the United States. The latest trade war puts focus on the REMX ETF.
Auto
President Trump announced a 25% tariff on auto imports to the United States. U.S. auto companies earn about sizable revenues from China. According to the U.S. International Trade Commission, the U.S. imports between $15.4 billion and $17.5 billion worth of transportation goods from China annually, as quoted on CNBC.
Moreover, the United States and Mexico share trade ties in the automotive industry. Hence, sectors with the largest Mexico exposure, autos and auto parts, are particularly vulnerable (read: Here's Where Tesla Stands Amid Auto Tariffs: ETFs in Focus).
Per an analyst at JPMorgan, as quoted on Forbes, sourcing about 40% of its vehicles from Canada and Mexico, General Motors (GM) could face a $14-billion hit to its earnings due to the new tariffs, making it the most vulnerable Thus, the ongoing clash will weigh on First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report) .
Steel
The new steel and aluminum duties may benefit the domestic steel and aluminum industries, boosting VanEck Steel ETF (SLX - Free Report) . But then, they could weigh on broader economic sectors. Ryan Young, a senior economist at the Competitive Enterprise Institute, noted that Trump's previous metal tariffs created approximately 1,000 jobs in the steel and aluminum sectors but resulted in the loss of 75,000 jobs in steel- and aluminum-dependent industries, such as automotive manufacturing, construction, and beverages, as quoted on Yahoo Finance.
Invesco Building & Construction ETF (PKB - Free Report) may lose over the long term due to higher steel prices as steel is a raw material in the construction industry (read: ETFs to Win/Lose as Trump Imposes 25% Tariffs on Steel and Aluminum).
Beverage
Beverages and spirits such as tequila, mezcal and beer accounted for a significant portion of U.S. imports, totaling almost $12 billion in trade. Corona beer maker Constellation Brands (STZ) could be at risks. The STZ stock has about 3.67% exposure to Invesco Food & Beverage ETF (PBJ). Moreover, the food and beverage bottling industry may see high-cost pressure due to steel tariffs.
Aerospace
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 (BA), Lockheed Martin (LMT - Free Report) and Northrop Grumman (NOC - Free Report) may come under pressure. Aerospace and defense ETFs like iShares U.S. Aerospace & Defense ETF (ITA - Free Report) may also feel the pinch.
Soybean
The two largest exporters of soybeans, Brazil and the United States, are likely to make up about 85% of the total global import demand. And soybeans are key U.S. exports to China. Needless to say, Teucrium Soybean Fund (SOYB - Free Report) may face the brunt of a retaliatory tariff.