Yesterday (26 March) President Trump announced that he’d be imposing 25% tariffs starting next week on all foreign-made cars. Not just the finished products, but it also applies to some car parts and components. As a result, it doesn’t surprise me that stock markets around the world are trading lower today. Here are the potential implications.
Taking the hit for exports
The immediate concern that comes to mind relates to the impact on UK car manufacturing. For example, consider Aston Martin (LSE:AML). The luxury car manufacturer exports to the US, so a 25% tariff would make the cars significantly more expensive in that market, potentially reducing sales volumes.
Unlike mass-market brands, Aston Martin operates in the luxury niche. The 2024 results showed wholesale volumes of 6,030 cars, which is small in comparison to more mainstream firms. As a result, having fewer cars sold could have a disproportionate impact on revenue, given the size of the market.
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To offset the tariff, management at Aston Martin could decide to absorb the cost. Even though this would act to keep demand as normal, it would reduce profit margins. Last year it recorded a gross margin of 36.9%, so a 25% hit on this clearly wouldn’t be great.
Finally, the business has no assembly plants in the US. So it’s not as if it can ramp up production in the country, avoiding tariffs that way. The stock is already down 57% over the past year, and I don’t think this latest news will help it going forward at all.
However, the US is just one market. With a strong new line-up of vehicles, boosted marketing from Formula 1 and a higher average selling price (ASP), the business could shift focus to other geographical regions instead to offset the tariff impact. In this case, things might not actually be that bad.
Other market impacts
Aside from Aston Martin, there are other impacts on the stock market more generally. For example, there are many businesses involved in some way in the automotive supply chain. This includes parts suppliers and logistics firms, meaning that they may experience operational challenges due to increased costs and trade barriers.
The continued tariff uncertainty isn’t great for investor sentiment. The broader market may witness heightened volatility as investors react to the escalating trade tensions and their potential impact on the UK economy. As a case in point, there could be UK job losses with car manufacturing plants in the UK, like Nissan’s Sunderland operations. This could sour sentiment further, causing investors to move to defensive stocks or choose to sit in cash.
The flipside is that we don’t actually know whether this tarfiff decision will be enforced. Already this year we have seen tariff delays, with some being dropped altogether. It’s a moving picture, so investors shouldn’t panic and make rushed investment decisions. Keeping a long-term view of the market should help to cut through the noise in the coming weeks.
