US rail stocks plunge after Trump announces new tariffs

US rail stocks fell sharply after the Trump administration announced a series of new tariffs, raising concerns about rising consumer costs and a negative impact on freight demand.

Union Pacific Railroad

Union Pacific Railroad (Photo: Shutterstock / Phaata)

Railway stocks plunged in morning trading on Thursday after the Trump administration announced broad tariffs on US trading partners on Wednesday.

This is seen as a signal that investors believe the new tariffs will push up commodity prices, thereby negatively affecting consumer spending, and leading to a decline in demand for raw materials and finished goods - the main items transported by rail.

As soon as the US stock market opened on Thursday, the S&P 500 index fell nearly 4%. CSX (NASDAQ: CSX) and Union Pacific (NASDAQ: UNP) both fell 4%, while Norfolk Southern (NYSE: NSC) fell nearly 5%.

Canadian railroads were less affected, perhaps because Canada and Mexico — the first two targets of the tariffs — were exempted from the retaliatory tariffs announced by the White House on Wednesday. Canadian National (NYSE: CNI) edged up in morning trade, while Canadian Pacific Kansas City (NYSE: CP) fell 0.7%.

“There is a sense of relief that Canada and Mexico were spared from additional tariffs. As the market starts to worry about the impact of tariffs on economic growth, it may also become relevant that, for Canadian investors, CN and CPKC are viewed as two of a limited number of ‘blue chip’ Canadian industrial stocks,” said Cherilyn Radbourne, an analyst at TD Securities in Toronto.

For U.S. railroads, the retaliatory tariffs imposed on China, the European Union, Japan and other Asian countries were much higher than initially expected.

“Ultimately, Trump’s tariff announcements were less onerous than feared for North American trade partners Canada and Mexico and worse than feared for China and other U.S. trade partners in Asia,” said Bascome Majors, an analyst at Susquehanna Financial Group. “This dynamic is playing out today in rail stocks with Canadian rails CP and CN outperforming and in broader transportation stocks with international trade levered businesses like Expeditors, FedEx, and UPS underperforming.”

With President Donald Trump’s tariff policy in flux this year, independent analyst Anthony B. Hatch asked how things could change in the coming weeks and months.

“It appears that Canada and Mexico were spared,” Hatch said. “But spared for how long?”

Hatch noted that the United States-Mexico-Canada Agreement (USMCA), signed during Trump’s first term, is up for renegotiation next year. At the same time, the 25 percent tariffs on steel and aluminum imports from Canada and Mexico remain in place.

However, Hatch said that higher tariffs on imports from other countries — such as 24 percent on Japanese goods — could make Canadian and Mexican products more competitive in the U.S. market.

Stellantis Corp. said Thursday that it would temporarily halt production of Chrysler minivans at its Windsor, Ontario, plant and the Jeep Compass at its Toluca, Mexico, plant as a result of the tariffs. Stellantis is also laying off some workers at plants that make components for those vehicles.

Hatch noted that more than half of all rail freight is related to trade in one way or another. But it will take some time to fully assess the true impact of the tariffs on rail traffic, as shippers need time to analyze the specific impact on their businesses.

Under the plan announced Wednesday, the US will impose a 10% tariff on all imports, and higher tariffs on countries deemed bad trade actors. Trump called the plan “Liberation Day”, hoping the tariffs will help reduce the trade deficit and boost domestic manufacturing in the US.

“Jobs and factories will come roaring back into our country, and you see it happening already,” Trump said. He also said that businesses that want to avoid tariffs should make their goods in the US.

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