Tariffs: America is reorienting its trade policy to align with its strategic priorities

Last week, President Donald J. Trump signed a proclamation invoking Section 232 of the Trade Expansion Act of 1962 to impose a 25% tariff on imports of automobiles and certain automobile parts, citing a critical threat to U.S. national security. The market is still trying to assess the rationale, impact, and duration of these tariffs. We had the opportunity to review the report published in 2019 by Congress, which the U.S. president referenced today to justify the tariffs aimed at limiting the impact of imports on the U.S. auto sector and national security (source: Bureau of Industry and Security). In order of risk, Mahle , Valeo , Schaeffler, and ZF are the most vulnerable to tariffs on specific parts, including engine components, electrical components, and transmission parts (ranked by order of interest from a national security perspective). Valeo , Schaeffler, and ZF were specifically mentioned in the report as foreign-owned companies that are targeted by these tariffs . Forvia appears to be the least affected by tariff risk compared to other players; however, it is the most exposed to the indirect impact of volume decreases, as 100% of its revenues come from the automotive sector. We remain U nderweight on the sector due to recent developments, along with other challenges faced by the industry, which lead us to believe that the gain-to-pain ratio is not yet accurately priced .