MW ETFs that buy stocks in Mexico, Canada, China drop after Trump's tariff threat

By Christine Idzelis

'Trump doesn't see allies, only adversaries,' says Stephen Brown, deputy chief North America economist at Capital Economics

Shares of exchange-traded funds that invest in stocks in Canada, Mexico and China were falling Tuesday, after President-elect Donald Trump announced over social media his plans to quickly impose new tariffs on those countries when he enters the White House.

The iShares MSCI Mexico ETF EWW was down a sharp 3% on Tuesday afternoon, while the iShares MSCI Canada ETF EWC slumped 0.9%, according to FactSet data, at last check. The iShares MSCI China ETF MCHI was falling 0.4% in Tuesday afternoon trading.

"Trump doesn't see allies, only adversaries," said Stephen Brown, deputy chief North America economist at Capital Economics, in a note Tuesday. "Now it's Canada and Mexico in the firing line, but Europe could easily catch the next stray bullet."

Trump wrote Monday evening on his Truth Social site that when he enters the White House on Jan. 20 he would sign necessary documents "to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders." In a Truth Social post, Trump railed against drugs and illegal immigrants crossing U.S. borders, saying Canada and Mexico would pay "a very big price" until they solve the problem.

"The threat to impose tariffs on 'Day One' supports our view that Trump is likely to move much more quickly with tariffs than during his first term," said Brown. "Trump's first threatened tariffs since the election are designed to extract concessions on drug trafficking and illegal border crossings, which means it may be possible for the countries targeted - Canada, Mexico and China - to head them off."

Read: Trump threatens to impose sweeping new tariffs on Mexico, Canada and China on first day in office

Mexico President Claudia Sheinbaum on Tuesday suggested the country could impose its own tariffs in retaliation, while also expressing willingness to engage in talks with the U.S, according to a report from the Associated Press.

Politico reported Tuesday that Canadian Prime Minister Justin Trudeau had "a good call" with Trump after the President-elect's threat of 25% tariffs on Canada.

"Even if Canada and Mexico appease Trump this time, the threat is a reminder that" the United States-Mexico-Canada Agreement on trade "will provide little protection from Trump's proposed universal import tariff," said Brown.

"The risks look particularly pronounced for Mexico, especially given that the country sits at the nexus of a range of policy areas important to Trump," said Brown. "But strong trade links mean that the risks to Canada's economic growth are arguably still greater than they are for China."

Trump also warned in a Truth Social post on Monday evening that China may see an additional 10% tariff above any others imposed.

The U.S. stock market was mostly rising on Tuesday afternoon, with the S&P 500 climbing into record territory, according to FactSet data, at last check. The index SPX was up 0.4% at around 6,009, trading slightly above its record closing peak notched on Nov. 11.

The other two major U.S. equities benchmarks were mixed in afternoon trade, with the Nasdaq Composite COMP up 0.4% and the Dow Jones Industrial Average DJIA down 0.1%, FactSet data show, at last check. The Dow was retreating slightly after on Monday logging its 45th record high of the year, according to Dow Jones Market Data.

-Christine Idzelis

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November 26, 2024 13:37 ET (18:37 GMT)

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