Al Root

Steel stocks were rallying early Monday. The reason isn't hard to figure: It's about tariffs.

Over the weekend, President Donald Trump went ahead with his plan to put 25% tariffs on goods from Mexico and Canada, and 10% on goods from China.

Tariffs will help raise the price of steel in the U.S. market, benefiting domestic steel producers and hurting domestic users of steel.

About 40% of steel imported to the U.S. comes from Canada, according to Nucor, America's largest steel producer. Imports can account for about 20% of total demand, depending on the year. The total annual demand for U.S. steel is typically in the range of 100 million tons, so the amount of steel subject to new tariffs is in the range of 8 million tons.

That doesn't seem like a lot, but it can impact the price of the entire market -- and the cost structure of steel users.

U.S. Steel stock was up 1.4% at $37.35, while S&P 500 and Dow Jones Industrial Average futures were down about 1.4% and 1.2%, respectively. Nucor shares were up 4.7% at $134.40. Steel Dynamics rose 0.7% to $129.06 and Cleveland-Cliffs stock gained 3% to $10.55.

U.S. car companies are users of steel. They also assemble cars in Mexico and Canada, and get parts from both countries. Their shares were lower. Tesla stock was off 2.5% in premarket trading at $394.70. Ford Motor shares were down 3.8% at $9.70. General Motors fell 6.4% to $46.30.

Investors now will need to determine how long tariffs will last. "This was done through the International Emergency Economic Powers Act (IEEPA) because of the major threat of illegal aliens and deadly drugs killing our Citizens," Trump wrote on X.

Agreement on border security could alleviate some of the tariff pressure. But Trump also has said repeatedly that a goal of tariffs is to bring more manufacturing back to the U.S.

The president also imposed tariffs during his first term. Some steel and aluminum from Canada were excluded from the tariffs. What's more, the auto industry avoided significant tariffs as Trump renegotiated free trade pacts with both countries.

This time could be different.

Whatever happens, investors face higher uncertainty. They always hate uncertainty.

GM shares dropped almost 9% after reporting fourth-quarter numbers last week. The quarter was fine and financial guidance for 2025 was better than expected. The company, however, didn't quantify the impact of tariffs on guidance. That new uncertainty was all it took for the stock to dive.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 03, 2025 07:25 ET (12:25 GMT)

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