President Donald Trump’s latest tariff threat is giving investors a fresh reason to scrutinize auto-focused ETFs.
Tariffs on Canadian cars, trucks, automotive parts and steel are set to rise to 50% on Jan. 1, 2027. That’s up from the current 25% auto tariff. The announcement followed the collapse of U.S.-Canada trade negotiations and immediately put pressure on Detroit automakers.
Ford Motor Co (NYSE:F) and Stellantis (NYSE:STLA) each fell about 4% Monday, while General Motors Company (NYSE:GM) declined roughly 2%. The moves highlight direct equity-market exposure, but ETFs offer a broader way to play potential disruption.
DRIV Offers a Diversified Exposure
The Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV) is an obvious fund to watch. It fell about 2% Monday.
Yet DRIV is far more diversified than the Detroit names. Microsoft Corp (NASDAQ:MSFT) is currently its largest holding at 3.65%, followed by Nvidia Corp (NASDAQ:NVDA) at 3.02%, Alphabet, Inc (NASDAQ:GOOGL) at 2.79% and Tesla, Inc (NASDAQ:TSLA) at 2.75%. General Motors accounts for 1.81% of the portfolio.
That means the tariff shock does not translate one-for-one into the ETF. Technology companies, semiconductor stocks and global automakers dilute its exposure to Canadian manufacturing.
Still, GM’s presence and the fund price’s initial reaction shows that the fund is not completely insulated from a North American auto supply-chain shock.
CARZ Provides Another Way to Play the Auto Theme
The First Trust S-Network Future Vehicles & Technology ETF (NASDAQ:CARZ) takes a similarly broad approach, holding 100 stocks across the vehicle and technology ecosystem.
Its largest positions includs Microsoft at 5.81%, Nvidia at 4.97%, Samsung Electronics at 4.84%, Apple, Inc (NASDAQ:AAPL) at 4.57% and Micron Technology Inc (NASDAQ:MU) at 4.56%. Tesla represented 3.94%.
That composition is important because it shows that even a vehicle-focused ETF can have relatively limited direct exposure to traditional North American automakers.
The Bigger ETF Trade Is Supply-Chain Reshoring
The more consequential question for ETF investors may be what happens if the 50% tariff actually takes effect.
Canada accounts for about 8% of North American auto production, according to data cited by the Financial Times. The region’s highly integrated auto supply chain means parts can cross the Canada-U.S.-Mexico borders multiple times before final assembly.
A prolonged tariff regime could force automakers to absorb higher costs, raise vehicle prices or accelerate production and sourcing shifts into the U.S. That could create winners among domestic manufacturers, steel producers and industrial companies even as automakers face margin pressure. ETFs, including the SPDR S&P Metals & Mining ETF (NYSE:XME), the Global X U.S. Infrastructure Development ETF (BATS:PAVE) and the iShares U.S. Industrials ETF (BATS:IYJ), could be worth watching in this regard.
Indeed, U.S. steel stocks moved higher Monday as automakers sold off, with Cleveland-Cliffs Inc (NYSE:CLF), Nucor Corp (NYSE:NUE) and Steel Dynamics Inc (NYSE:STLD) all gaining in Monday trading.
For ETF investors, Trump’s proposed 50% tariff could become a test of which funds are truly exposed to North American auto manufacturing, and which are diversified enough to absorb the shock.
Photo: Shutterstock
Login to comment