Trade war tensions escalated after Donald Trump implemented the planned tariffs on America’s top trading partners — Mexico, Canada and China — on March 4. The new administration imposed a fresh 25% tariff on Canada and Mexico, and doubled down on China duties to 20%.

Canada hit back with 25% tariffs on C$155 billion ($107 billion) worth of U.S. goods within the next 21 days. Tariffs of C$30 billion on everyday goods like pasta, clothing and perfume are effective immediately. Meanwhile, China retaliated with fresh 10-15% duties on several U.S. agricultural and food products effective from March 10. Products like soybeans, sorghum, pork, beef, aquatic products, fruits, vegetables and dairy products will face 10% tariffs, whereas 15% duties will be imposed on chicken, wheat, corn and cotton. 

Mexico promised to retaliate soon. President Claudia Sheinbaum indicated plans for reciprocal measures, including tariffs on U.S. products such as pork, cheese and steel, though specifics were pending (read: Trump Tariffs & Retaliatory Moves Put These ETF Areas in Focus).

The rounds of tariffs will hurt U.S. consumers, driving up the prices of goods, thereby curtailing spending. It will further impact the worldwide economy and corporate profits, particularly for big U.S. exporters. All these will continue to weigh on the stock market and can disrupt global supply chains. While most corners of the market are set to tumble, sectors such as automobiles, agriculture, homebuilding, aerospace, retail and energy are expected to be hit the most by the tit-for-tat tariffs. 

Below, we have highlighted a few ETFs and stocks from these sectors that are on investors’ radars following the escalation in trade war fears.

Automobiles

Automakers will bear the largest brunt of the tariffs as Canada and Mexico accounted for about 47% of U.S. auto imports and 54% of car part imports. These countries are the key markets for U.S. auto exports, receiving 75% of exported car parts. The tariffs are expected to increase production costs for major automakers, including Ford (F Quick QuoteF - Free Report) , General Motors (GM Quick QuoteGM - Free Report) and Stellantis STLA, thereby hurting their profitability.

S&P Global estimates the new duties on imports from Mexico and Canada to cost these U.S. carmakers 10-25% of their annual EBITDA on average. The tariffs could add as much as $12,000 to the price of a new car, according to a report by the Anderson Economic Group.

First Trust S-Network Future Vehicles & Technology ETF CARZ, which offers global exposure to auto stocks, will likely remain under pressure.

Agriculture 

Trump's new tariffs on goods from Canada, Mexico and China threaten to hurt the $191-billion American agricultural export sector, warned by farm groups. Imports of agricultural products, such as grains, meats, dairy, fruits and vegetables, from Canada and Mexico will face higher costs. Notably, China is the world's biggest soybean importer, whereas about 85% of U.S. imports of potash fertilizer come from Canada. Further, about 20% of U.S. milk production is exported annually, with about 40% going to Canada, Mexico and China, according to Chuck Nicholson, an associate professor at the University of Wisconsin-Madison.

The tariffs will increase grocery prices as Mexico is one of the top suppliers of tomatoes, avocados, berries and peppers in the United States. The most popular Invesco DB Agriculture Fund DBA will see rough trading in the months ahead (read: 5 Safe ETF Buying Zones as Global Trade Tensions Escalate).

Homebuilding

The tariffs would raise the cost of building materials, including lumber and appliances, leading to elevated home prices and reduced affordability. CoreLogic estimates that tariffs will increase homebuilding costs 4-6% over the next year, hurting profitability. Stocks like D.R. Horton (DHI Quick QuoteDHI - Free Report) , Toll Brothers (TOL Quick QuoteTOL - Free Report) and Lennar (LEN Quick QuoteLEN - Free Report) , and ETFs like iShares U.S. Home Construction ETF ITB and SPDR S&P Homebuilders ETF (XHB Quick QuoteXHB - Free Report) will be impacted by the latest trade tariff war (read: No More Spring Surge for Homebuilders This Year? ETFs in Focus).

Aerospace

China, Mexico and Canada are major buyers of U.S.-made aircraft. The retaliation from these countries will make the production of the aircraft more expensive. Boeing (BA Quick QuoteBA - Free Report) and Airbus, as well as aerospace suppliers, including Spirit AeroSystems and Hexcel, will see increased costs for raw materials. As a result, iShares U.S. Aerospace & Defense ETF ITA, which offers exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment, is likely to get hurt by the tariff war. 

Retail

With a large share of consumer goods from home appliances to toys sourced from China and Mexico, major retailers like Walmart (WMT Quick QuoteWMT - Free Report) , Target (TGT Quick QuoteTGT - Free Report) , Best Buy (BBY Quick QuoteBBY - Free Report) and Costco (COST Quick QuoteCOST - Free Report) are expected to see higher prices as a result of the new tariffs. SPDR S&P Retail ETF XRT and VanEck Vectors Retail ETF RTH, thus, will likely be hurt.

JPMorgan estimates that more than 80% of toys sold in the United States are made in China. Retailers are also vulnerable to higher consumer electronics costs. Walmart’s growing grocery business could see increased costs, given that Mexico supplied 40% of U.S. fruit imports and nearly 50% of its imported vegetables in 2023.

Energy

The energy sector will face increased costs as a result of Trump’s tariffs. A 10% tariff on Canadian energy exports, including electricity, natural gas and oil, is expected to raise energy prices for American consumers. Given that Canada is a major supplier of energy to the United States, the tariff could lead to increased costs for heating, electricity and fuel. This is expected to hurt ETFs like United States Natural Gas Fund UNG and Energy Select Sector SPDR Fund (XLE Quick QuoteXLE - Free Report) .