March 1 (Reuters) - Shares of auto makers and other large steel and aluminum users in the United States tumbled on Thursday after President Donald Trump announced a plan to slap hefty tariffs on imports of the metals, which he said would protect U.S. industry.
The announcement of tariffs of 25 percent on steel imports and 10 percent on imported aluminum rocketed through the stock market, taking a toll on industrial companies and aircraft manufacturers, as well as the auto makers, while driving up U.S. metals producers.
Shares of the three major U.S. auto makers, which were already down due to weak numbers for U.S. new vehicle sales in February, took another leg down following Trump’s announcement.
Shares of General Motors Co lost 3.9.7 percent, Ford Motor Co was down 3.0 percent and Fiat Chrysler Automobiles was down 2.8 percent. The Dow Jones Industrial Average closed down more than 400 points, or almost 1.7 percent.
The tariffs would be hard to pass onto consumers amid flat to declining auto sales, said John Toohey, head of equities at USAA Asset Management Company in San Antonio, Texas, which has $166 billion in assets under management.
“Tariffs are sand in the gears of economic activity, and automakers are right at the top of the list,” he said, citing the sheer volume of steel and aluminum they use to produce vehicles.
The auto sector accounted for 26 percent of demand for steel in the United States in 2017, behind the construction industry, at 40 percent of demand in 2017, according to data provider Statista. The energy sector was the third biggest user, at 10 percent.
With the auto industry already facing a year of declining sales as interest rates rise, tariffs would be yet another blow, Toohey said.
“Tariffs would be a big headwind for the auto industry,” he said.
U.S. auto industry sales fell 2 percent last year to 17.23 million vehicles after hitting a record high in 2016. New vehicle sales are expected to drop further in 2018 despite a solid economy.
Consumers could end up paying more for their cars and trucks, the American International Auto Dealers Association said.
“These proposed tariffs on steel and aluminum imports couldn’t come at a worse time,” said AIADA President and CEO Cody Lusk.
“Auto sales have flattened in recent months, and manufacturers are not prepared to absorb a sharp increase in the cost to build cars and trucks in America. The burden of these tariffs, as always, will be passed on to the American consumer,” Lusk said.
The U.S. oil lobby also criticized the move, noting that its members rely on steel imports in drilling, on and offshore production, pipelines, liquefied natural gas terminals and refineries.
U.S. natural gas trade groups said they are concerned the tariffs could delay or reduce new pipeline projects as well as dent exports of liquefied natural gas.
Shares of U.S. steel and aluminum companies surged. Among steel makers, AK Steel Holding Corp jumped 9.5 percent, while U.S. Steel Corp rose 5.7 percent. Nucor Corp and Steel Dynamics Inc each gained more than 4 percent.
Aluminum producer Century Aluminum Co’s shares rose 3.3 percent, while Alcoa Corp edged up 0.2 percent.
U.S. industrial companies fell. Shares of construction and mining equipment maker Caterpillar Inc, plane maker Boeing Co and tractor maker Deere & Co all fell at least 2.5 percent.
Last week, Caterpillar’s director of investor relations, Amy Campbell, said the majority of the steel that CAT uses for manufacturing comes from the United States. Yet, she expects the tariffs to pose a “challenge” as they would cause domestic steel prices to rise along with prices of imported steel, because the tariffs would give U.S. makers pricing power, putting Caterpillar at a competitive disadvantage vis-à-vis their non-U.S. competitors.
“The industrial metal companies, the domestically focused ones, are probably going to benefit from this,” said Art Hogan, chief market strategist at B. Riley FBR in Boston, who saw the broad impact as negative, with a possible impact on the ongoing renegotiations of the North American Free Trade Agreement.
“In the longer run we’ve seen that tariffs generally don’t work and actually they generally hurt the economy,” Hogan said. “In the immediate to longer run it’s probably seen as a step towards trade wars (and) retaliation. Negotiations with NAFTA could break down over this.”
Reporting by Nick Carey in Detroit and Arunima Banerjee in Bengaluru Writing by Lisa Shumaker Editing by Anna Driver and Leslie Adler