US-Canada trade war, impact of new tariff wall on metals market

As the United States and Canada face tens of billions of dollars in losses from a flurry of tariffs as a result of President Trump’s new trade war against the country’s second-largest trading partner, companies, economists and investors are once again trying to predict the level of volatility expected in corporate balance sheets and stock prices.

The U.S. government’s 50% tariffs on a wide range of Canadian products were met with $20 billion worth of Canadian retaliatory tariffs scheduled to go into effect on September 8. The retaliatory tariffs include more than 700 U.S. products and are intended to mirror the scale of Trump’s import taxes on Canadian wine, cement, hockey sticks and more. The countervailing tariffs, which range from 15% to 50%, target a wide range of U.S. imports into Canada, including dairy products, seafood, home appliances, wood and paper products, and clothing.

Last Monday, as a new trade war dominated the headlines, winners emerged in the market in real time. Consider the reaction of steel and materials stocks. new core, steel dynamics, cleveland cliffs and century aluminumwhich rose all at once on Monday following the collapse of U.S.-Canada trade talks, after many fell the previous week on bets that a new deal between the U.S. and Canada would lower steel and aluminum tariffs. VanEck Steel ETF (SLX) rose 1.6% on Monday alone, while the State Street Materials Select Sector SPDR (XLB) hit a new intraday high, surpassing a record high set in February, as metal stocks and other producers rose.

However, the rise in new trade wars did not last long. XLB ended the week with five trading days in negative territory, while SLX was nearly flat. Indeed, these funds have already posted significant gains in 2026. Year-to-date, both ETFs have outperformed the world’s best. S&P500according to Morningstar data as of August 28, SLX rose more than 28% and XLB rose more than 18%.

Atsi Sheth, chief credit officer at Moody’s Ratings, said uncertainty is the watchword right now. “We can expect this uncertainty to continue to increase for some time to come,” Sheth said.

Which companies win and lose in trade wars will depend on increasingly complex supply chains. One of the most complex is the automotive sector, where parts move back and forth across borders multiple times during the production of a vehicle.

“When it comes to the auto sector, our view is that the sector is so integrated that tariffs only affect the country that is imposing the tariff, not the country that is imposing the tariff,” Sheth said of the U.S. and Canadian auto manufacturing ecosystems.

He said U.S. steel companies are likely to benefit because the U.S. market is larger.

“There are no winners in the auto sector. Steel…the U.S. has a bit of an advantage,” Sheth said.

“The new tariffs are creating meaningful but manageable headwinds,” said Angelo Kourkafas, senior global investment strategist at Edward Jones.He said it’s a headwind that ends in both directions as rising costs for steel and aluminum begin to impact U.S. manufacturing, autos and construction on this side of the border.

Kyle Mohrbach, senior automotive executive for North America at supply chain technology and consulting firm o9 Solutions, said Canadian-sourced, single-source parts and materials that are difficult to substitute or that are needed to keep assembly lines moving are at greatest risk. In the automotive sector, this includes everything from steel, stamping products, and powertrain components to braking systems, electronics, and specialized subassemblies.

Why short-term winners in trade wars are difficult to trust

Scott Bollier, professor of economics and dean of the University of Wyoming’s College of Business, distinguishes between stocks that earn profits and companies that earn profits. “Tariffs could create an immediate scarcity premium for domestic steel and aluminum producers, but the lasting winners will be those with three things: domestic production capacity that can be brought online, relatively secure energy and raw material inputs, and customers that cannot easily substitute them,” Borlier said. This is a much smaller group than “American metal companies,” he said.

Aluminum is a good example, according to Beaulier.

“The United States remains heavily dependent on imports, and Canada has provided a disproportionate share of the United States’ primary aluminum. You cannot eliminate that dependence overnight with tariffs,” Bollier said, adding that smelters are extremely capital and energy intensive and that building new capacity takes years, not months.

“In the near term, tariffs could increase the prices received by U.S. producers while also increasing input costs for U.S. manufacturers that use aluminum. We would be cautious about treating the initial spike in metal stocks as evidence of a sustained rally in the overall economy,” Bourlier said.

Melissa Ilmen, advocacy director for the National Association of Foreign Trade Zones, which represents more than 1,300 companies and more than 500,000 employees, said businesses are scrambling to manage an already volatile situation. “We’re already seeing some changes in the supply chain and adjustments in sourcing decisions,” Ilmen said.

Foreign trade zones allow businesses to bring imported materials into the United States without paying immediate duties, and if those products are reexported or reprocessed into another product, businesses can defer, reduce, or in some cases avoid tariffs altogether.

Ilmen said many warehouses have moved to Canada in the past few years as companies adjust to updated trade rules of origin governing whether supply chain relocations result in tariff evasion. But now, companies may simply change their supply chains permanently to avoid uncertainty.

“All the tariff uncertainty changes things forever. Companies can’t make the quick decisions needed to change tariffs. Supply chains don’t work that way,” Ilmen said. “We are telling our members that things will not go back to the way they were before 2025. Please try to think as long-term as possible,” she added.

Supply chains and borders matter

Meanwhile, only time will tell how the market will react to such a shock, but experts say people should not be fooled too quickly by the quick positive reaction in steel and other sectors.

“Honestly, the rise in stock prices is a reflection of the headlines,” said Dan Lutner, managing partner at supply chain consulting firm Neos by Argon & Company. “Factories reprice to replacement cost as soon as the 50% barrier goes up, so naturally Nucor and Cleveland-Cliffs jumped.” “But that’s not an interesting question. The interesting question is who controls the raw material inside the walls and who is still exposed to it?”

Rutner said that while the SLX and XLB moves show the market will quickly reprice into the 50% tariff wall, the moves say little about which companies within these funds are actually controlling their own destiny in the trade war. He said Nucor and Cleveland-Cliffs structurally maintain a price umbrella because they operate electric arc furnaces and integrated production capacity that never touch Canadian ore or slabs. Still, there is no single deal on the structural elements of this business. Nucor stock is up nearly 50% this year, but Cleveland-Cliffs is in negative territory in 2026 due to continued balance sheet stress. Century Aluminum is difficult to work with for another reason, Rutner said. Because the United States has low primary aluminum production capacity, much of its supply still crosses the border as alumina or semi-finished products.

“So the turnaround is real, but it’s not immune to the same frictions that should be protected,” Rutner said.

Then there are metal plays such as freeport mcmorranXLB has the third largest holding of the ETF at 6.5%, but it’s not actually in this basket at all. Because this is a story about copper and critical minerals policy, a completely different trade story that is also benefiting from the AI ​​boom.

Rutner said the border itself is a supply chain, not a line on a map. North American Steel and Aluminum has been operating in integrated multi-cross systems for 30 years.

“Canadian primary aluminum goes to extruders in the U.S., and the steel that is melted in the U.S. heads north for finishing and returns south in finished cars and appliances. Tariffs are not imposed once on that cargo. Every time the metal passes again, the tariffs get heavier,” Rutner said. That’s what the corporate planning team is currently working on. Explode the bill of materials line by line to find where parts physically cross boundaries multiple times. “That’s really the important point,” Rutner added.

This makes the new trade war between the United States and Canada very different from the Strait of Hormuz, another recent trade chokepoint for the economy.

“Hormuz is geography and the oil has nowhere else to go. This is policy. Volumes can be rerouted, shored or absorbed into prices, but it just takes 12 to 24 months of capital and requalification to do that,” Rutner said. “This is a slow-motion reallocation. So the real story is not which inventories have skyrocketed, but which manufacturers have already de-risked their supply chains before this week, and which manufacturers are only now finding out how many times their products have crossed that border,” Rutner said.

Moody’s Sheth said the rating agency will closely monitor the performance of the heavy industry, steel and aluminum sectors. After all, large companies are usually better able to withstand shocks, but situational uncertainty can cause the most damage as companies reconfigure their long-term options and supply chains. “Companies are not going to sit back and wait,” Sheth said.

—CNBC’s Kevin Breuninger contributed to this report.