What new tariff walls in U.S.-Canada trade war mean for the economy's critical metals — CNBC

RESOLVING THE LEDGER

As the U.S. and Canada stare down tens of billions of dollars in dueling tariff regimes as a result of President Trump's new trade war against the nation's second-biggest trading partner, companies, economists, and investors are back in the game of attempting to forecast the level of volatility to expect on corporate balance sheets and in stock prices.

The U.S. government's 50% tariffs on a wide range of Canadian goods were met with Canada's $20 billion in retaliatory tariffs slated to go into effect on Sept. 8. They encompass more than 700 U.S. goods, meant to mirror the size of Trump's import taxes on Canadian wine, cement, hockey sticks and more. The counter-tariffs, which range from 15% to 50%, target a wide array of U.S. imports into Canada, including dairy, seafood, appliances, wood and paper products, and clothes.

There were some real-time market winners as the new trade war dominated headlines last Monday. Consider the reaction in steel and materials stocks, including Nucor , Steel Dynamics , Cleveland-Cliffs and Century Aluminum , which all shot up on Monday after the U.S.-Canada trade talks broke down, and after many had fallen the week before on bets a new U.S-Canada deal would lower tariffs on steel and aluminum. The VanEck Steel ETF ( SLX ) rose 1.6% on Monday alone, while the State Street Materials Select Sector SPDR ( XLB ) hit an intraday all-time high — surpassing its previous all-time record price reached in February — as the metals stocks and other producers rallied.

But the new trade war rally didn't last. XLB ended the five-day trading week in negative territory and SLX was close to flat. To be sure, these funds have already booked some hefty gains in 2026. Year-to-date, both ETFs are beating the S&P 500 , with SLX up over 28% and XLB up over 18%, according to Morningstar data as of Aug. 28.

Atsi Sheth, chief credit officer at Moody's Ratings, said uncertainty is the watchword now. "Expect much more of this uncertainty for some time to come," Sheth said.

Which businesses win in a trade war and which lose depends on an increasingly complex supply chain. One of the most complicated is the auto sector, where parts cross back and forth over the border multiple times in the production of a vehicle.

"For the auto sector, our view is that the sector is so integrated that the tariffs just don't impact the country you are tariffing but your own country," Sheth said of the U.S.-Canada automobile manufacturing ecosystem.

U.S. steel companies are more likely to benefit, she said, because the U.S. market is larger.

"The auto sector, there are no winners. Steel ... U.S. has a little edge," Sheth said.

Performance of the State Street Select Sector Materials ETF over the past month. "The new tariffs create a meaningful but manageable headwind," said Angelo Kourkafas, senior global investment strategist at Edward Jones, a headwind that cuts both ways, as higher steel and aluminum costs also start working through U.S. manufacturers, autos, and construction on this side of the border.

Kyle Mohrbach, senior executive for North America automotive at o9 Solutions, a supply chain technology and consulting firm, said the greatest exposure sits in components and materials that are Canadian-sourced, single-sourced, hard to substitute, or required to keep an assembly line moving. In the automotive sector, that includes everything from steel, stampings, and powertrain components to braking systems, electronics and specialized subassemblies.

Scott Beaulier, dean of the College of Business and professor of economics at the University of Wyoming, draws a distinction between stocks that benefit and businesses that benefit. "A tariff can create an immediate scarcity premium for domestic steel and aluminum producers. But the durable winners will be firms that have three things: domestic capacity they can bring online, relatively secure energy and raw-material inputs, and customers unable to easily substitute away from them," Beaulier said. That's a much smaller group than "American metals companies," he said.

Aluminum is a good example, according to Beaulier.

"The United States remains heavily import-dependent, and Canada has supplied an extraordinary share of U.S. primary aluminum. You can't tariff our dependence away overnight," Beaulier said, adding that smelters are enormously capital- and energy-intensive, and new capacity takes years rather than months to build.

"In the meantime, the tariff can raise the price received by U.S. producers while simultaneously raising input costs for American manufacturers using aluminum. I'd be cautious about treating an initial pop in metals stocks as evidence of a durable economy-wide gain," Beaulier said.

Here's a look at other stories offering insight on ETFs for investors.

Companies are already scrambling to manage the volatile situation, said Melissa Irmen, director of advocacy for the National Association of Foreign-Trade Zones, which represents over 1,300 companies and over 500,000 employees. "We have already been seeing some supply chain shifts and sourcing decisions adjusted," Irmen said.

A foreign-trade zone lets companies bring imported materials into the U.S. without paying tariffs right away, and if those goods are re-exported or reworked into a different product, the company can defer, reduce, or sometimes avoid the duty entirely.

Irmen said corporate adjustments to the latest rules of origin for trade — which dictate whether supply chain relocations can result in tariff avoidance — saw a lot of warehousing move to Canada over the past few years. But now, companies may just permanently alter their supply chains to avoid the uncertainty.

"All of the tariff uncertainty will permanently change the landscape. Companies are not able to make the fast decisions required for the tariff changes. Supply chains don't work that way," Irmen said. "We tell our members things will not go back to the way they were pre-2025. Try to look as lon...

What new tariff walls in U.S.-Canada trade war mean for the economy's critical metals — CNBC | AIPROPX