Kansas City Southern
Kansas City Southern (KSU) shares fell ~5% on May 31. President Trump announced tariffs on all of the imported goods from Mexico. On May 30, President Trump tweeted that all of the goods imported from Mexico will have a 5% duty starting on June 10. He also threatened to increase the tariffs up to 25% by October 1 if Mexico doesn’t stop illegal migrants and drug peddling.
More expensive imports will likely disrupt the trade between the two countries. The higher prices will likely hurt most of the economic sectors. US railroad companies would be among the last sectors to feel the pinch of reduced imports from Mexico in terms of lower rail traffic volume.
Among the Class I US railroad companies, Kansas City Southern has significant exposure to the latest Mexico tariff hike risk. About 40% of the company’s total rail traffic was generated through the cross-border trades. Nearly 60% of Kansas City Southern’s cross-border rail traffic is between the US and Mexico. About 25% of the company’s rail traffic is exposed to the Mexico tariff risk.
Apart from Kansas City Southern, Union Pacific (UNP) also has significant exposure to Mexico. According to CNBC, the company has 10.9% sales exposure in Mexico. Therefore, Union Pacific stock fell 1.6% on May 31.
The world had already been facing sluggish growth due to trade tensions between the US and China. The latest tariff hike announcement on goods imported from Mexico increased the fears of a global trade slowdown.
Apart from railroad companies, US automaker stocks fell the most. Automaker stocks have significant exposure to Mexico. They usually import car components, which account for over 30% of the US imports from Mexico.
Fiat Chrysler (FCAU), General Motors (GM), and Ford Motor (F) shares fell 5.8%, 4.3%, and 2.3%, respectively, on May 31. The First Trust NASDAQ Global Auto Index Fund (CARZ) fell 2.3%. CARZ invests in global auto manufacturing firms.