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What changed in the latest tariff round?

US-Canada tariffs have created a new tax burden worth tens of billions of dollars in trade between the two countries. After the Donald Trump administration imposed a 50% tariff on a broad range of goods from Canada, Ottawa announced a $20 billion retaliation package due to take effect on Sept. 8.

Canada's countermeasures cover more than 700 US products, with rates ranging from 15% to 50%. The list includes dairy products, seafood, household appliances, wood and paper goods, and clothing, while Washington's tariffs also target items such as Canadian wine, cement and hockey sticks.

According to Moody's Ratings Chief Credit Officer Atsi Sheth, the key issue for markets is not only the level of the tariffs but also how long the uncertainty lasts. Analysts say that environment makes it harder for companies to forecast costs and can lead to sharp daily swings in share prices.

Markets reacted first, but the gains did not last

After news that trade talks had broken down, steel and materials stocks saw a quick round of buying on Monday. Nucor, Steel Dynamics, Cleveland-Cliffs and Century Aluminum all rose, while the VanEck Steel ETF (SLX) gained 1.6% on the day; the Materials Select Sector SPDR (XLB) also briefly tested an all-time high during the session.

But the initial pricing did not hold for the rest of the week. XLB ended five-day trading in negative territory, while SLX finished the week roughly flat. Even so, according to Morningstar data dated Aug. 28, SLX is up more than 28% year to date and XLB is up more than 18%, with both funds outperforming the S&P 500.

Stock reactions and the real economy may not move in step

Experts say steel producers may have a relative advantage because of the size of the US domestic market. Aluminum is more complicated, however, because the US still depends on imports for primary aluminum, and Canada plays a major role in that supply. The fact that new smelting capacity cannot be built in months, but only over years, makes it harder for price pressure to fade quickly.

The biggest pressure is on autos and cross-border supply chains

One of the most sensitive areas is the automotive sector. Because parts used in vehicle production can cross the border multiple times, the tariff impact is not limited to a single shipment; every time the metal crosses again, the cost is added to the chain. For that reason, experts say there is no clear winner for automakers in the trade war.

  • Canada-sourced steel and aluminum inputs that are hard to replace
  • Stamped parts, powertrain components and brake systems
  • Electronic components and specialized subassemblies

Companies are weighing options such as foreign trade zones, warehouse relocations and new supply sources to reduce the pressure. But industry representatives stress that supply chains cannot be rebuilt in a few weeks, and that this uncertainty could lead to more lasting route changes over the next 12 to 24 months.

Ratings agencies also say they will keep a close watch on heavy industry, steel and aluminum companies. Large-scale firms are expected to absorb shocks more easily, while the main investor risk is seen as which producers can reduce their dependence on cross-border inputs in advance.

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