Shares of domestic automakers General Motors (NYSE: GM), Ford Motor (NYSE: F), and Fiat Chrysler (NYSE: FCAU) plunged last week after President Trump unexpectedly declared that the U.S. would impose tariffs on Mexico as part of a strategy to combat a surge in migrants entering the United States across the southern border.
The wipeout for these auto stocks was understandable, as all three import lots of components and completed vehicles from Mexico to the U.S. That said, many analysts and investors appear to be overreacting to the threat of tariffs. GM, Ford, and Fiat Chrysler have meaningful opportunities to mitigate the potential impact of tariffs. Additionally, improving commodity cost trends should help offset any tariff headwind over the next several quarters.
Last Thursday, the Trump administration announced that the U.S. will impose a 5% tariff on Mexican imports beginning on June 10. The tariffs are set to increase to 10% on July 1, 15% on Aug. 1, and 20% on Sept. 1, before finally plateauing at 25% on Oct. 1. "Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory," according to an official White House statement.