Stocks slid on auto tariffs and recession panic; Gold surged

·       The US may be soon downgraded  by global rating agencies like Moody’s, S&P, and Fitch amid the recurring drama of the US shutdown for breaching debt limit

·       The market is still expecting less hawkish Trump’s reciprocal tariffs on 2nd April; retaliatory auto tariffs by Mexico, Canada, and the EU may be on hold

·       Despite 25% Trump auto tariffs, Mexican cars (Chinese proxy) will be far cheaper than the US

·       Increasing prices of automobiles may affect US consumer demand leading to a US auto recession, higher unemployment, and stagflation

Wall Street Futures surged in the last few days after a volatile day of trading amid Trump’s Secondary, Flexible, and Targeted tariffs. Wall Street has some brief respite on hopes of a less hawkish Trump trade war. The S&P 500 climbed 1.8% to a two-week high, while the Nasdaq 100 gained 2.1%, and the Dow Jones rose 597 points. Wall Street was also boosted briefly by softlanding optimism after upbeat S&P Global PMI data for the US and projections of at least 1.5% real GDP growth in Q1CY25 (against negative GDP growth concern). But hawkish comments by Fed’s Bostic also dragged the risk trade sentiment.

On Wednesday, March 26, 2025, Wall Street also slid as Trump is set to announce auto tariffs later in the day.  Accordingly, late Wednesday, after the closing of the US market, as highly expected, US President Trump announced a 25% tariff on imported automobiles and parts, effective April 3, 2025, aiming to bolster domestic manufacturing and generate approximately $100 billion in annual tax revenue from the US importers. Industry experts warn that these tariffs could increase US vehicle prices by thousands of dollars, reduce consumer demand, and disrupt the integrated North American supply chain, potentially resulting in job losses within the manufacturing sector.

As of March 26, 2025, President Trump has announced a significant escalation in his trade policy, imposing a 25% tariff on all imported automobiles and certain auto parts, effective April 3, 2025. This move is part of a broader strategy dubbed "Liberation Day," set for April 2, 2025, where additional reciprocal tariffs will target countries with trade surpluses against the U.S.

Trump Auto Tariffs

Announcement and Scope: On March 26, 2025, Trump declared a 25% tariff on all cars and light trucks shipped to the U.S., alongside key auto parts like engines, transmissions, and electrical components. This follows a one-month reprieve granted earlier in March to U.S. automakers after pushback from industry leaders like General Motors, Ford, and Stellantis.

Scope: The tariffs apply not only to fully assembled vehicles but also to critical components such as engines, transmissions, and electrical systems. This comprehensive approach aims to impact a wide range of automotive imports.

Objective: The White House claims this will boost domestic manufacturing, projecting $100 billion in annual revenue, with Trump claiming it could reach $600 billion to $1 trillion over two years to reduce national debt. The policy invokes national security under Section 232 of the Trade Expansion Act of 1962, citing the need to protect the U.S. industrial base.

Implementation Details: Cars imported under the U.S.-Mexico-Canada Agreement (USMCA) will face tariffs only on non-U.S. content, with a process still being developed to assess this. A temporary exemption for USMCA-compliant parts from Canada and Mexico ends on April 2, 2025, after which tariffs will apply unless production shifts to the U.S.

Proposed Incentives:

Trump admin is also planning to provide income tax deduction on interest of a US-made car loan. Trump has floated making auto loan interest tax-deductible for U.S.-made vehicles, though this would primarily benefit higher-income taxpayers.

Broader Trade War: Other Tariffs already implemented or may/may not be implemented

·       A 20% tariff on Chinese imports in two phases (10% effective February 4, 2025, increased to 20% by March 4)

·       Now Trump may again scale back to 10% Chinese tariffs to seek help from his ‘friend’ Xi (Chinese President) for a concession on his planned acquisition of the TikTok app.

·       In reality, a 20% tariff on all Chinese goods may result meaningful higher cost of living for Americans Thus Trump has no way, but to scale back; he is looking for some face-saving exit in the form of TikTok.

·       A 25%  metal tariffs on all imported steel and aluminum (removing prior exemptions)

·       A 25% "secondary tariff" on countries buying Venezuelan oil or gas, effective April 2.

Trump tariffs announced, but not yet implemented:

·       25% on Mexican and Canadian goods (with a 30-day auto exemption ending April 2)

·       Reciprocal Tariffs: Starting April 2, Trump plans "reciprocal" tariffs matching those imposed by other nations on U.S. goods, targeting major trade partners like the EU, Japan, South Korea, and India.

·       Sector-specific tariffs on pharmaceuticals and semiconductors are also slated at 25% or higher, though exact dates are to be announced.

Trump’s Auro Tariffs Impact-Economic Effects:

Car Prices: Analysts estimate a $3,000 to $12,500 increase per vehicle, depending on import origin and parts sourcing. Cox Automotive predicts a $6,000 hike for cars from Mexico or Canada, with U.S.-assembled vehicles rising by $3,000 due to imported parts. This could push the average new car price by around $7500 (already ~$49,000) higher, reducing affordability and potentially increasing inflation and higher cost of living.

Supply Chain Disruption: The integrated North American auto industry (supply chain/OEM) faces chaos, with parts crossing borders multiple times. Suppliers, employing 550,000 U.S. workers, could see production cuts if Canadian and Mexican plants falter, risking layoffs. Bernstein estimates a $75 billion annual cost to automakers.

The imposition of these tariffs may lead to disruptions in production across North America due to the integrated nature of automotive manufacturing. Experts warn that this could result in a reduction of up to 20,000 vehicles produced daily, representing about a 30% decrease in output.

GDP and Jobs: The Tax Foundation projects a 0.4% GDP drop and 309,000 job losses from current tariffs, excluding retaliation. Earlier Trump 1.0 tariffs (2018-2019) reduced GDP by 0.2% and jobs by 142,000, per studies.

Auto Industry Response:

Automakers: Foreign firms like Hyundai (pledging $21 billion in U.S. investments) and Mercedes are expanding U.S. operations to mitigate tariffs, while Tesla, producing domestically, faces less direct impact but higher parts costs. GM, Ford, and Stellantis stocks dropped 4-7% after the announcement.

Suppliers: Smaller parts makers face financial distress, with 97% surveyed by MEMA citing tariff concerns. This could ripple through the industry, reminiscent of pandemic disruptions.

The United Auto Workers (UAW) union has expressed support for the tariffs, arguing they could lead to the creation of thousands of jobs in the U.S. automotive sector by encouraging production shifts back to domestic plants. Conversely, industry groups like Autos Drive America have warned that these tariffs will raise production costs and ultimately lead to higher prices for consumers and fewer job opportunities in the US auto manufacturing hub.

Global Reaction:

Global responses have been swift. Allies like Canadian Prime Minister Mark Carney termed the US auto tariffs a "direct attack" on Canada and indicated plans for retaliation to protect Canadian workers and industries. In Germany, Hildegard Müller, president of the German Association of the Automotive Industry (VDA), described the tariffs as detrimental to free and fair trade, expressing concern over their impact on German car exports to the U.S., a key market for brands like BMW, Volkswagen, and Mercedes-Benz.

The tariffs have led to immediate financial repercussions, with significant stock declines for major automakers such as General Motors, Ford, Stellantis, Toyota, and Honda. The EU (Ursula von der Leyen decrying consumer harm), and Japan (PM Shigeru Ishiba considering "all options") are mulling retaliation, risking a broader trade war. South Korea and Brazil (planning a WTO complaint) also criticize the move.

The tariffs are expected to have far-reaching effects beyond the U.S., particularly impacting countries that are integral to US/global automotive supply chains, such as Canada, Mexico, Germany, Japan, and South Korea.

Consumer Sentiment: Uncertainty is dampening confidence, with manufacturing activity contracting (S&P Global) and business equipment orders dropping (Commerce Department), signaling economic unease.

Trump’s auto tariff is part of a broader strategy, claiming to boost domestic manufacturing, and jobs and reduce reliance on imports, particularly from countries contributing to the U.S. trade deficit. Trump may be trying to prevent China, which is using Mexico as a proxy manufacturing hub, especially for EVs, from bypassing US tariffs directly. But still, Mexico-made EVs will be cheaper than others in the US due to comparatively cheaper labor, real estate, and other input costs.

After Trump’s auto & ancillary tariffs, a small US EV may cost around $23000-$28750 against a Mexican/Chinese model of $15000-17500. Analysts predict that these tariffs could increase the average cost of a vehicle in the U.S. by thousands of dollars. For instance, estimates suggest an increase of approximately $3,000 for vehicles manufactured in the U.S. and around $6,000 for those produced in Canada or Mexico without exemptions. The cost of a mid-range EV like Tesla may increase by almost $10000 to $60000 in the US due to higher import duties (tariffs) on auto components.

Global Impact of Trump Auto Tariffs:

At present the US imports automobiles from several countries. The top five exporters to the U.S. in 2024, based on the value of passenger vehicle imports, were:

·       Mexico: A leading supplier due to its proximity, trade agreements like the USMCA, and extensive manufacturing plants for brands like Ford, GM, and Toyota. Mexico accounted for about 23% of U.S. car imports in 2024, valued at nearly $50 billion.

·       Japan: Known for brands like Toyota, Honda, and Nissan, Japan is a major exporter, contributing around 19% of U.S. car imports in 2024, with a value of approximately $40 billion.

·       South Korea - Home to Hyundai and Kia, South Korea exported cars worth about $38 billion to the U.S. in 2024, making up 17% of the import market.

·       Canada: Another North American neighbor, Canada exports cars to the U.S. under favorable trade conditions, contributing around 13% of imports, valued at roughly $28 billion in 2024.

·       Germany: A hub for luxury brands like BMW, Mercedes-Benz, and Volkswagen, Germany supplied about 12% of U.S. car imports in 2024, with a value of approximately $26 billion.

Other notable countries exporting cars directly to the U.S. include:

·       United Kingdom: Exports brands like Jaguar and Land Rover, though in smaller volumes (around $10 billion) compared to the top five.

·       Slovakia: Exports vehicles like the Volkswagen Touareg and Porsche Cayenne, produced in its manufacturing hubs WORTH AROUND $6 billion

·       Italy: Supplies niche and luxury vehicles, such as those from Ferrari and Maserati worth around $4 billion

·       Sweden: $4 billion

·       China: $4 billion

·       Hungary: Increasingly significant with the production of models like the Audi Q3

·       Austria: Contributes through brands like BMW with specific models manufactured there.

Impact on India: Although India's direct automobile exports to the U.S. are relatively small compared to other countries, Indian auto component manufacturers could face significant challenges due to increased costs and reduced demand from U.S.-based automakers. Indian companies like Tata Motors and Samvardhana Motherson are likely to feel the pinch as they supply parts that may now incur higher tariffs when exported to the U.S.

The US is the 2nd largest automobile market in the world after China, followed by India, Japan and Germany. The U.S. automotive industry is a significant component of the national economy, encompassing the production, sale, export, and import of vehicles and automotive parts. In 2022, the United States exported cars and parts valued at nearly $97 billion, marking a 16% increase compared to 15 years prior.

Total Market Size of the US (2025 Estimate): Likely exceeds $1 trillion, with sales of 15-16 million vehicles.

Export Share: Approximately 15-20% of production, valued at over $150 billion annually.

Import Share: Around 45-50% of sales, valued at $240 billion, with Mexico as the leading supplier.

The U.S. automotive market is one of the largest in the world, encompassing the production, sale, and servicing of motor vehicles. Market Value: As of 2023, the U.S. automotive market was valued at approximately $4.35 billion, with forecasts suggesting growth to $10.67 billion by 2032 at a compound annual growth rate (CAGR) of 10.5%. However, broader industry estimates, including manufacturing and sales, suggest a much larger economic footprint. For instance, the North American automotive market (dominated by the U.S.) is projected to reach $1.04 trillion in 2025, growing to $1.36 trillion by 2030 at a CAGR of 5.43%.

Vehicle Sales: In 2023, U.S. light vehicle sales reached about 15.5 million units, rebounding from 13.8 million in 2022. Projections for 2025 vary, but sales are expected to hover between 15-16 million units, influenced by economic conditions, consumer demand, and policy changes like tariffs or EV incentives.

Production: U.S. motor vehicle production in 2023 was approximately 10.6 million units, with American manufacturers producing around 10 million units annually in recent years. This figure reflects a mix of passenger cars, light trucks, and heavier vehicles.

The total market size, when considering production, sales, and aftermarket services, is a multi-trillion-dollar industry, with the auto sector contributing roughly 3% to U.S. GDP.

Share of Exports: The U.S. is also a significant exporter of automobiles and automotive parts, though it ranks behind countries like Germany and Japan in total export value:

Export Volume: In 2023, the U.S. exported 1.6 million new light vehicles and over 160,000 medium and heavy-duty trucks. Additionally, automotive parts exports were valued at $93.7 billion.

Export Value: The top U.S. exports in 2023 included cars ($65.3 billion), making it one of the leading export categories. Total automotive exports (vehicles and parts) likely exceeded $150 billion.

Destinations of US exports: Key export markets include Canada ($269 billion across all goods, with cars a significant portion), Mexico ($243 billion), and China ($154 billion). Canada and Mexico are major recipients of U.S.-made vehicles due to proximity and trade agreements like the USMCA.

Share of Production: With production at 10.6 million units and exports at 1.6 million light vehicles (plus additional trucks), exports account for roughly 15-20% of U.S. vehicle production.

Share of Imports

Imports play a substantial role in the U.S. automotive market, meeting nearly half of consumer demand:

Import Volume: In 2023, the U.S. imported approximately 8 million cars, aligning with. This represents about 50% of total vehicle sales.

Import Value: The import value of cars in 2023 was around $179 billion, with total automotive imports (including parts) nearing $240 billion. Automobiles constitute 8.3% of total U.S. imports, making them the most imported commodity by value.

Market Share: Imports account for approximately 45-50% of the U.S. auto market, with domestic production covering the remainder. This balance reflects consumer preference for foreign cheaper brands (e.g., Toyota, Honda) and the integration of North American supply chains.

Sources: Mexico is the top supplier of cars to the U.S., followed by South Korea, Japan, Canada, and Germany. China also contributes, though its share is smaller compared to these leaders. The U.S. was the world’s largest importer of cars by value in 2023.

Trade Dynamics: The U.S. runs a trade deficit in automobiles, importing more than it exports. Policies like the proposed 25% tariffs on imports from Mexico and Canada (delayed as of early 2025) could shift this balance by raising import costs and encouraging domestic production.

Vehicle Type Shift: Light trucks (e.g., SUVs, pickups) dominate both production and sales, comprising 70-80% of the market, while passenger car sales have declined (e.g., down 14.1% year-over-year in February 2025).

Electrification: Electric vehicles (EVs) are a growing segment, with 1.2 million sold in 2023 (7.6% of the market). This trend impacts import/export shares, as some EVs are imported (e.g., from China), while others (e.g., Tesla) are U.S.-made and exported.

Overall:

·       Total US Automobile Market Size (2025 Estimate): Likely exceeds $1 trillion, with sales of 15-16 million vehicles.

·       Export Share: Approximately 15-20% of production, valued at over $150 billion annually

·       Import Share: Around 45-50% of sales, valued at $240 billion, with Mexico as the leading supplier

In summary, Trump's latest auto tariff measures are poised to invite an all-out automobile recession due to affordability issues for ordinary Americans; it may also cause high unemployment and higher prices, helping broader stagflationary impact on the economy. Japanese Carmakers May Face Catastrophic Impact From Trump's Auto Tariffs. The US and also EU are far behind China/Mexico in EV efficiencies & cost and thus trying to score over China by imposing exorbitant tariffs like 60-100% tariffs on Chinese EVs.

On late Wednesday, March 26, 2025, Trump said in his Truth post:

“LIBERATION DAY IN AMERICA IS COMING, SOON. FOR YEARS WE HAVE BEEN RIPPED OFF BY VIRTUALLY EVERY COUNTRY IN THE WORLD, BOTH FRIEND AND FOE. BUT THOSE DAYS ARE OVER — AMERICA FIRST!!!”

“If the European Union works with Canada to do economic harm to the USA, large scale Tariffs, far larger than currently planned, will be placed on them both to protect the best friend that each of those two countries has ever had!”

Highlights of Trump’s other comments on March 26, 2025:

·       Mexico and Canada have stepped it up a lot

·       We've made a lot of progress in Ukraine. We are in deep discussions with Russia and Ukraine, and it's going well.

·       Making a lot of progress in the Middle East

·       Russia and Ukraine will get together on a maritime ceasefire

·       Other countries are involved in the process of monitoring the ceasefire

·       There's another business announcement coming tomorrow

·       The EU has been freeloading and is terrible on trade

·       I have been very fair on tariffs

·       Trump on April 2nd Tariffs: I have them set

·       Prices on gasoline, eggs, and groceries are down

·       Fed should lower rates

·       I would like to see interest rates come down

·       Tariffs will create more jobs

On Thursday, March 27, 2926, Mexico's President Sheinbaum and Finance minister said:

·       Trump's auto tariffs to go into effect April 3

·       I am working on a thorough response to auto tariffs

·       There should be no tariffs within the USMCA

·       Within a free trade agreement, there should not be tariffs

·       Mexico is offering preferential treatment in auto talks

·       Mexico to inform on steel and auto side letters on April 2

·       Mexico's auto exports won't carry the brunt of full 25% tariff

·       We are at a negotiating table with the US Commerce Secretary to protect auto parts made in Mexico

·       Auto parts won't be charged on every border crossing

·       We'll give an 'integral' response to the US on April 3

·       We are going to give a response to US tariffs after April 2

On Thursday, French President Macron said:

·       Trump's tariffs policy is inflationary

·       Europeans will respond by reciprocating

·       We will work with the EU on looking at how to protect sectors

·       We'll help all sectors hit by US tariffs

Conclusions:

Trump may blink again and scale back or postpone reciprocal tariff implementations to 1st July from 2nd April for ‘progress’ on BTA (bilateral trade deal) with various countries including China, India, Canada, Mexico, and the EU. It’s the US importers and consumers, who have to bear the brunt of higher tariffs, not the exporters despite the rhetoric of US ERS (External Revenue Service) to collect Trump Tariffs from exporters. In such a situation, all targeted exporters may also stop shipping goods to the US and will eventually divert goods to other destinations. China has been preparing for such a moment for the last 20 years to reduce the US and Europe's dependency on trade amid never-ending geopolitical fragmentations.

Trump also realized that the Fed is not going to cut rates before June’25 and thus he may also postpone his reciprocal and country-specific higher tariffs till at least June’25. The dealmaker Trump is using tariffs and US consumption as leverage to make concessions in trade and also forcing various US/foreign companies to invest in the ‘Liberated US” under his ‘Golden Age’.

Tariff Man Trump often talks about China’s huge trade surplus of over $1 trillion globally and $300 billion with the US. This is because the US and other countries are using China’s manufacturing hub as a cheaper outsourcing to maintain the comparatively lower cost of living. China has efficient industrial and logistical infra on a huge scale. The US imported Chinese goods as a compulsion as it had no alternative either domestically or even externally. China is not forcing the US to buy its goods at gunpoint.

Trump has to compete with China by developing comparable industrial and logistical infra including high-speed railway networks across America. Trump can’t simply replace Chinese goods by imposing draconian tariffs and waging tech & cold war. But Trump’s logic of reciprocal tariffs on countries like India is a good idea, although it may not be practical as India does not need US cars, pharmaceuticals, etc. In any way, Trump may impose some restrictions like H1B visas or even special service tariffs on India’s IT service exports.

Trump may be creating a trade war between the US and the rest of the world to Make America Great Again. Trump tariff tantrum may not only cause US stagflation but may also create a synchronized global economic slowdown and even an all-out recession just in 5-6 years after the previous cycle of Global recession triggered by COVID. Trump is not respecting his trade deal with China in 2020 and also the USMCA trade deal (FTA) with Mexico and Canada. Now Mexico may join BRICS, while the US may also exit from NATO. Eventually, Trump’s trade and geopolitical policies are paving the way for China and Russia to consolidate their global influence and BRICS may become a NATO-like organization in the coming years.

Bottom line: More Tariffs, More Threats, and more retaliatory tariffs

The US may be downgraded by Global rating agencies like Fitch, S&P, and also Moody’s amid an increasing probability of US government shutdown and debt limit drama coupled with stagflation or even an all-out recession amid Trump policy tantrums.

Market Wrap:

On early Friday, US session (27th March), Wall Street Futures recovered from the Trump auto tariffs panic low as Mexico, Canada and also other countries didn’t impose any retaliatory tariffs on US Cars in response to Trump’s 25% auto tariffs in March 26, 2025, especially by the EU,  China, Canada and Mexico. Also, Mexico may not opt for big 25% retaliatory tariffs on US autos as 25% Trump auto tariffs on Mexican autos may not affect Mexican auto exports to the US significantly. There was also a report that Trump may flexibly launch two-phased reciprocal tariffs or even scale back some of his hawkish narratives. The market is still expecting a less hawkish Trump trade war tantrum amid nervous-looking Trump amid an increasing probability of Trumpflation and Trumpcession.

Gold got a boost early Thursday and scaled a new life time high of almost $3060 amid Trump trade war uncertainty and the increasing probability of a synchronized global slowdown.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42300) now has to sustain over 42500 for a further rally towards 42700/42900-43200/43500 and 43700/44050 and 44250/44400-44500/44800 and 45000/45200-45300/45500 and even 45700/45800-45900/46000 in the coming days; otherwise sustaining below 42400, DJ-30 may again fall to 42000/41500-40900/39500 and 38700-36100 in the coming days.

Similarly, NQ-100 Future (19900) has to sustain over 20200-21050 for a further rally to 21300/21500-21700/21850 and 22050/22200-22350/22500 and 22700/23000-23300/23500 in the coming days; otherwise, sustaining below 21000, NQ-100 may again fall to 20900/20600-20400/20150 in the coming days.

Also, technically Gold (CMP: 3060) has to sustain over 3035/3065 and 3075-3100 for a further rally to 3125/3150-3200/3225; otherwise sustaining below 3065-3065-3045, Gold may again fall to 2990 and 2965/2925-2900/2880 and 2850/2835-2810/2780-2780 and 2745/2725-2695/2665 and further 2635/2600-2585/2560 in the coming days.