President Trump agreed to a one-month reprieve for automakers from 25% tariffs, sending shares of General Motors and the broad S&P 500 higher. Meanwhile, the 25% Trump tariffs on copper announced during his Tuesday night speech to Congress lit a fire under copper prices and shares of Freeport-McMoRan.
This marks the second time that Trump has backtracked following a sharp S&P 500 sell-off, which may give Wall Street comfort that he won't ignore the stock market impact. While a cloud of uncertainty will remain for the next 30 days, Commerce Secretary Howard Lutnick said Tuesday that Trump is open to meeting Mexico and Canada "in the middle."
Trump Tariff Relief For Auto Sector
The 30-day delay affects autos compliant with the U.S.-Mexico-Canada Agreement that Trump signed in his first term. The agreement provided for a quota for auto imports to the U.S. from Mexico and Canada, along with rules of origin regarding the percentage of parts that must be manufactured in North America.
Trump highlighted on Tuesday night Honda's decision this week to build its next Civic hybrid in Indiana, not Mexico, as a victory.
Bernstein analysts have estimated that the 25% tariffs on Canada, Mexico and China could add $2,700 per vehicle, creating a $43 billion headwind for the industry. Of the Big Three, Bernstein said GM would feel the biggest hit, amounting to a 64% decrease in automotive free cash flow.
Trump Tariffs Will Cause 'Disturbance'
The latest expansion of Trump tariffs to copper imports follows this week's major escalation, as 25% tariffs hit Mexico and most imports from Canada, while an across-the-board tariff on Chinese imports doubled to 20%. Trump, who also confirmed that tariffs on agricultural imports will take effect on April 2, didn't sound like he was having second thoughts on Tuesday night.
Trump tariffs "will take in trillions and trillions of dollars and create jobs like we have never seen before," he said. Tariffs will make "America rich again" rather quickly, Trump said, but not before "a little disturbance." Americans should be "OK with that."
Copper Price Jumps On Trump Tariffs
The near-term copper futures price jumped 5.7% to $4.82 per pound on Wednesday after Trump's confirmation of 25% tariffs on imports of the red metal. The price may be rising ahead of the implementation of tariffs as companies race to get supplies ahead of the import tax.
Trump's speech lumped copper in with an expansion of 25% aluminum and steel tariffs, which are set to take effect on March 12. However, Trump's Feb. 26 executive order initiating an investigation of copper imports didn't include any decision on whether there should be a tariff or, if so, how big of one.
The order noted that the U.S. "has ample copper reserves, yet our smelting and refining capacity lags significantly behind global competitors."
Copper Tariffs: 'Primarily Inflationary'
Benchmark Minerals wrote on Feb. 3 that the U.S. has a trade surplus in copper ore, concentrates and scrap, with 900 kilotons — just under a million U.S. tons — exported mainly to Mexico and China.
"If these raw materials were to (be) converted into refined copper domestically, they would offset the country's refined copper imports," Benchmark Minerals analysts wrote.
However, the near-term impact of tariffs "is likely to be primarily inflationary," they wrote. That's because even if Trump eliminates hurdles to permitting mine and smelter projects in the U.S., "it still takes around two years to construct smelters and four years in the case of mines."
The Benchmark Minerals team added that copper pricing has built in hopes "that Chinese authorities will unleash a major fiscal stimulus package at the Two Sessions meeting" starting March 5. The meeting announced expanded fiscal deficits for the current year and Beijing aims to boost domestic consumption.
FCX, GM
General Motors surged 6.8% in Wednesday stock market action, making it among the top S&P 500 performers, while Ford Motor rose 5.6%.
Freeport-McMoRan jumped 9%. The move carried FCX stock back to its 50-day moving average. But look for a move above 40.85 to break the downtrend that began in late September.
Among other copper plays, Southern Copper rose 5.1% and Teck Resources 7.5%.
In the current, unpredictable market, IBD suggests stocks with ATRs of 3 or below.
S&P 500
The S&P 500 rebounded 1.2% on Wednesday afternoon, following a 3% sell-off over the two prior days. The S&P 500 finished Tuesday 0.1% below its Election Day close, before Trump's victory became clear.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
