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Stock markets are in turmoil and the United States economy seems to be racing towards a recession in response to President Donald Trump’s universal and reciprocal tariffs announcements on April 2, as well as the 25% tariff on imported vehicles and vehicle parts due to commence on May 3.
Battery raw materials, included in the critical minerals umbrella, largely escaped the latest tariff announcements unscathed. The 10% universal tariffs went into effect on April 5, with the reciprocal tariffs kicking in on April 9. These two tariff actions will not be cumulative, with any reciprocal tariffs superseding the universal tariffs. The automotive tariffs will also not be cumulative with the 10% universal tariffs.
Canada and Mexico have avoided the reciprocal and universal tariffs but will still face the 25% automotive and auto parts tariffs, as well as the 25% tariffs on steel and aluminium. The rates for Canada and Mexico auto exports will still enjoy the lower 12.5% tariff for USMCA-compliant vehicles with 50% US content.
In the face of the US imposition of a 34% reciprocal tariff on imports from China, China has responded with its intent to impose an additional 34% import tariff on the US on April 10. US President Donald Trump is threatening a further 50% tariff on China if the country does not withdraw its retaliatory tariff increase on imports from the US.
Critical minerals are among the few items excluded from the universal and reciprocal tariff plans. The notable exception is synthetic graphite, which is used in most graphite anodes in the lithium-ion battery sector, which is not exempt from the universal and reciprocal tariffs. Although most battery raw materials may not be directly targeted, the indirect impact of tariffs across the manufacturing and consumer sectors is expected to be severe.
US consumer confidence is plunging, and the collapse of the stock market will prompt significant tightening in spending by US consumers. US consumer spending is responsible for two-thirds of US economic growth, and consumer spending is critical for the EV market, and in turn, battery raw material markets.
Fastmarkets’ economists and analysts are watching the developing situation closely, and in response, have slashed US GDP growth expectations to 0.8% for 2025, down from 2.8% in the previous year and our earlier forecast of 2.0% for this year. Fastmarkets’ economists generally view US GDP growth of 1% or below as a recession, even if the economy does not technically fall into recession. Recession is typically defined as two consecutive quarters of negative economic growth.
Slow economic growth will also be accompanied by high inflation. Although we expect to see some response from the US Federal Reserve regarding interest rate cuts in the latter half of 2025, Fastmarkets’ economists are now targeting a US inflation rate of around 4-5% during 2025. Collapsing oil prices will help offset rising consumer goods pricing but will be insufficient to prevent inflationary conditions brought on by the tariffs.
The economic turmoil caused by the tariff announcements since February is already evident in the Institute of Supply Management’s (ISM) manufacturing index. Although the end goal of President Trump’s actions is to boost manufacturing activity, the massive disruption to supply chains and the inflationary impact of the moves for now, are hitting the manufacturing sector. The March ISM manufacturing index fell to 49.0, down from 50.3 in March, with any readings below 50 indicating contraction in manufacturing activity. The outlook for the index is also bearish, given that the new order component of the index fell to 45.2, solidly in contractionary territory.
Against this backdrop, we expect significant downward revisions to our forecasts for both US and global economic growth, as well as downwardly revised forecasts for EV sales in the US and global markets. EV sales will be negatively affected by both rising vehicle costs as imported components see rising prices as well as by declining demand from consumers as consumers lose confidence and face increasing inflationary pressures. US battery raw material prices, apart from synthetic graphite, will not face inflationary tariff increases as a result of the latest round of tariffs given their exemptions, and instead are more likely to decline in the coming months given the impending reduction in demand from the EV battery sector.