Cars, lumber and toilet paper are all feeling tariff pain
This week saw noteworthy developments across technology, financial markets and international trade policies, as investors navigated heightened volatility driven by constantly shifting political announcements.
The artificial intelligence (AI) boom is driving massive data centre construction, but concerns about overbuilding are growing, leading to more strategic investment decisions. Microsoft, for example, has reportedly halted some U.S. and European data centre projects. This cautious approach comes amid a restructured deal with OpenAI, allowing the AI company to use other cloud providers and thereby potentially reducing Microsoft's immediate need for expansion. While Microsoft still plans to spend roughly $80 billion on AI data centres this fiscal year, this pullback suggests a growing industry awareness of overcapacity risks. Balancing ambitious growth plans with the potential for oversupply is a key challenge as the AI landscape continues to evolve rapidly.
On a brighter note, the U.S. economy delivered positive data this week. Fourth-quarter 2024 gross domestic product (GDP) grew by 2.4% on an annualized basis, driven by strong corporate profit growth of 5.9% (the largest quarterly increase in over two years). Upward revisions in net exports, government spending and business investment also contributed to the strong performance, although consumer spending rose slightly less than initial estimates (by 4%).
Meanwhile, ongoing political developments have created new uncertainties. The Trump administration's tariff threats continue to raise concerns about supply chain disruptions, higher costs and effects on consumer and business confidence. Investors fear these policies will impact earnings and GDP growth in the coming quarters.
The automotive and lumber sectors are already feeling the impact of these tariffs. This week, President Trump imposed a 25% tariff on imported automobiles, effective April 3, with plans to extend the tariff to major auto parts by May 3.
Domestic automakers, reliant on complex global supply chains, have emphasized that reshoring production cannot happen overnight, as retooling factories and reorganizing logistics can take years. Analysts warn these tariffs could substantially increase vehicle prices, hurting both consumers and manufacturers.
It’s ironic that President Trump’s tariffs on Canadian softwood lumber could impact something as mundane as toilet paper. Yet, this essential household item now faces potential shortages, sparking fears of a repeat of the panic buying witnessed during the early days of the pandemic five years ago.
We’ll closely monitor next week's announcement of a country-by-country tariff "formula", which President Trump has termed "Liberation Day."
What we know for sure is that this trade war isn’t over yet, and it will make for some choppy markets in the weeks to come.
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