What U.S.-Canada trade war, new tariff walls mean for metals market

As the U.S. and Canada stare down tens of billions of dollars in dueling tariff regimes as a result of President Trump’s new trade war against the nation’s second-biggest trading partner, companies, economists, and investors are back in the game of attempting to forecast the level of volatility to expect on corporate balance sheets and in stock prices.

The U.S. government’s 50% tariffs on a wide range of Canadian goods were met with Canada’s $20 billion in retaliatory tariffs slated to go into effect on Sept. 8. They encompass more than 700 U.S. goods, meant to mirror the size of Trump’s import taxes on Canadian wine, cement, hockey sticks and more. The counter-tariffs, which range from 15% to 50%, target a wide array of U.S. imports into Canada, including dairy, seafood, appliances, wood and paper products, and clothes.

There were some real-time market winners as the new trade war dominated headlines last Monday. Consider the reaction in steel and materials stocks, including Nucor, Steel Dynamics, Cleveland-Cliffs and Century Aluminum, which all shot up on Monday after the U.S.-Canada trade talks broke down, and after many had fallen the week before on bets a new U.S-Canada deal would lower tariffs on steel and aluminum. The VanEck Steel ETF (SLX) rose 1.6% on Monday alone, while the State Street Materials Select Sector SPDR (XLB) hit an intraday all-time high — surpassing its previous all-time record price reached in February — as the metals stocks and other producers rallied.

But the new trade war rally didn’t last. XLB ended the five-day trading week in negative territory and SLX was close to flat. To be sure, these funds have already booked some hefty gains in 2026. Year-to-date, both ETFs are beating the S&P 500, with SLX up over 28% and XLB up over 18%, according to Morningstar data as of Aug. 28.

Atsi Sheth, chief credit officer at Moody’s Ratings, said uncertainty is the watchword now. “Expect much more of this uncertainty for some time to come,” Sheth said.

Which businesses win in a trade war and which lose depends on an increasingly complex supply chain. One of the most complicated is the auto sector, where parts cross back and forth over the border multiple times in the production of a vehicle.

“For the auto sector, our view is that the sector is so integrated that the tariffs just don’t impact the country you are tariffing but your own country,” Sheth said of the U.S.-Canada automobile manufacturing ecosystem.

U.S. steel companies are more likely to benefit, she said, because the U.S. market is larger.

“The auto sector, there are no winners. Steel … U.S. has a little edge,” Sheth said.

“The new tariffs create a meaningful but manageable headwind,” said Angelo Kourkafas, senior global investment strategist at Edward Jones, a headwind that cuts both ways, as higher steel and aluminum costs also start working through U.S. manufacturers, autos, and construction on this side of the border.

Kyle Mohrbach, senior executive for North America automotive at o9 Solutions, a supply chain technology and consulting firm, said the greatest exposure sits in components and materials that are Canadian-sourced, single-sourced, hard to substitute, or required to keep an assembly line moving. In the automotive sector, that includes everything from steel, stampings, and powertrain components to braking systems, electronics and specialized subassemblies.

Why short-term winners in trade wars are hard to trust

Scott Beaulier, dean of the College of Business and professor of economics at the University of Wyoming, draws a distinction between stocks that benefit and businesses that benefit. “A tariff can create an immediate scarcity premium for domestic steel and aluminum producers. But the durable winners will be firms that have three things: domestic capacity they can bring online, relatively secure energy and raw-material inputs, and customers unable to easily substitute away from them,” Beaulier said. That’s a much smaller group than “American metals companies,” he said.

Aluminum is a good example, according to Beaulier.

“The United States remains heavily import-dependent, and Canada has supplied an extraordinary share of U.S. primary aluminum. You can’t tariff our dependence away overnight,” Beaulier said, adding that smelters are enormously capital- and energy-intensive, and new capacity takes years rather than months to build.

“In the meantime, the tariff can raise the price received by U.S. producers while simultaneously raising input costs for American manufacturers using aluminum. I’d be cautious about treating an initial pop in metals stocks as evidence of a durable economy-wide gain,” Beaulier said.

Companies are already scrambling to manage the volatile situation, said Melissa Irmen, director of advocacy for the National Association of Foreign-Trade Zones, which represents over 1,300 companies and over 500,000 employees. “We have already been seeing some supply chain shifts and sourcing decisions adjusted,” Irmen said.

A foreign-trade zone lets companies bring imported materials into the U.S. without paying tariffs right away, and if those goods are re-exported or reworked into a different product, the company can defer, reduce, or sometimes avoid the duty entirely.

Irmen said corporate adjustments to the latest rules of origin for trade — which dictate whether supply chain relocations can result in tariff avoidance — saw a lot of warehousing move to Canada over the past few years. But now, companies may just permanently alter their supply chains to avoid the uncertainty.

“All of the tariff uncertainty will permanently change the landscape. Companies are not able to make the fast decisions required for the tariff changes. Supply chains don’t work that way,” Irmen said. “We tell our members things will not go back to the way they were pre-2025. Try to look as long term as you can,” she added.

The difference between a supply chain and border matters

Meanwhile, only time will tell how the market handles these shocks, and experts say one shouldn’t be immediately seduced by any quick positive reaction, such as in steel.

“The stock pop is a headline reflex, honestly — mills reprice to replacement cost the second a 50% wall goes up, so of course Nucor and Cleveland-Cliffs jumped,” said Dan Luttner, managing partner at NEOS by Argon & Company, a supply chain consulting firm. “But that’s not the interesting question. The interesting question is who controls their feedstock inside the wall versus who’s still exposed to it?”

Luttner said the SLX and XLB moves illustrated a market repricing instantly to a 50% tariff wall, but the action said little about which companies inside those funds actually control their own fates in a trade war.  He said Nucor and Cleveland-Cliffs run electric arc furnaces and integrated capacity that never touches Canadian ore or slab, so they keep the price umbrella structurally. Still, there is no single trade on that structural element to the business: Nucor’s shares are up close to 50% this year, while Cleveland-Cliffs is in negative territory in 2026 due to ongoing balance sheet stress. Century Aluminum is tricky for another reason, according to Luttner. Because U.S. primary aluminum capacity is thin, a lot of what feeds it still crosses the border as alumina or semi-finished product.

“So the upside is real, but it’s not immune to the same friction it’s supposed to be protected from,” Luttner said.

Then there are metals plays like Freeport-McMoRan, the third-largest holding in XLB at 6.5% of the ETF, which doesn’t really belong in this basket at all, because it’s a copper and critical-minerals policy story, an entirely different trade story that is also benefitting from the AI boom.

Luttner said the border itself is a supply chain, not a line on a map. North American steel and aluminum have run on an integrated, multi-crossing system for three decades.

“Canadian primary aluminum into U.S. extruders, U.S.-melted steel going north for finishing, coming back south inside finished autos and appliances. A tariff doesn’t tax that shipment once. It compounds every time the metal re-crosses,” Luttner said. That is what corporate planning teams are up against right now: pulling apart bills of materials line by line to find where a part physically crosses the border more than once. “That’s where this actually bites,” Luttner added.

That makes the new trade war between the U.S. and Canada very different from another recent trade chokepoint for the economy, the Strait of Hormuz.

“Hormuz is geography, the oil has nowhere else to go. This is policy — the volume can reroute, reshore, or get absorbed into price, it just takes 12 to 24 months of capital and requalification to do it,” Luttner said. “It’s a slow-motion reallocation. So the real story isn’t which stock popped, it’s which manufacturers had already de-risked their supply chain before this week, and which ones are only now finding out how many times their product crosses that border,” Luttner said.

Moody’s Sheth said the rating agency will be watching closely the performance within heavy manufacturing, steel and aluminum. Ultimately, the larger companies can usually withstand shocks better  but the uncertainty of the situation can cause the most damage as companies reconfigure their long term options and supply chains. “Companies won’t sit on their hands and wait,” Sheth said.

—CNBC’s Kevin Breuninger contributed to this report.