President-elect Donald Trump‘s move to impose 25% tariffs on Canada can thwart the growth of the stock markets and affect corporate profits, inflation, transportation and oil marketing companies.
What Happened: This comes as Goldman Sachs head of commodities research, Daan Struyven told Bloomberg that “The 25% levy on all products from Canada proposed by Trump would likely raise the price of fuels in the U.S.”
“He said that tariffs could significantly affect U.S. consumers, U.S. refiners, and Canadian producers," on Wednesday. In order for American producers to export more of their own oil, the U.S. imports almost 4 million barrels of Canadian crude a day. Struyven added that this could be a “negotiating tool.”
"Given the focus from Trump to lower energy costs, we think Canada tariffs are somewhat unlikely,” he added
U.S. and Canada along with Mexico signed the United States–Mexico–Canada Agreement as an update to North American Free Trade Agreement, or NAFTA in 2020. It allowed for mostly duty-free trade between the three countries. Trump’s threat of tariffs would seem to violate the terms.
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Why It Matters: As higher Canadian tariffs could raise the domestic fuel prices in the U.S., it will impact the corporate profits of many companies and increase both, consumer and producer price inflation.
The input costs of transportation and oil marketing companies can increase, which may lower their profits and stock prices. Also, investors may want to short the stocks of these companies when oil prices are high.
A few of the many transportation companies that would get affected by this include, Union Pacific Corp (NYSE:UNP), CSX Corp (NASDAQ:CSX), Uber Technologies Inc (NYSE:UBER), Old Dominion Freight Line Inc (NASDAQ:ODFL), TFI International Inc (NYSE:TFII), Knight-Swift Transportation Holdings Inc (NYSE:KNX), XPO Inc (NYSE:XPO) and Alaska Air Group, Inc. (NYSE:ALK).
Similarly, companies like Chevron Corp (NYSE:CVX), Exxon Mobil Corp (NYSE:XOM), BP plc (NYSE:BP), TotalEnergies SE (NYSE:TTE), Shell PLC (NYSE:SHEL), Enbridge Inc (NYSE:ENB), and ConocoPhillips (NYSE:COP) are a few oil marketing companies that my bear the direct brunt of this.
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