Musk Falls Victim to Trade Wars: The Economic Logic Behind Countermeasures from Canada and Others

Musk Falls Victim to Trade Wars: The Economic Logic Behind Countermeasures from Canada and OthersThe lingering effects of the US-China trade war, coupled with the Trump administration's trade disputes with other nations, continue to impact businesses. Elon Musk, founder of Tesla (market cap: $1

Musk Falls Victim to Trade Wars: The Economic Logic Behind Countermeasures from Canada and Others

The lingering effects of the US-China trade war, coupled with the Trump administration's trade disputes with other nations, continue to impact businesses. Elon Musk, founder of Tesla (market cap: $1.2 trillion) and SpaceX ($350 billion valuation), and his companies, have become a focal point for countermeasures from some countries, highlighting the potential negative impact of geopolitical risks on high-valuation tech companies.

Musk's close relationship with the Trump administration has made his companies an "ideal target" in trade wars. This risk manifested in the US-Mexico-Canada Agreement (USMCA) tariff dispute. The Trump administration planned to impose a 25% tariff on goods from Mexico and Canada, signing an executive order on February 1st. However, this plan was delayed by a month just days later. Nevertheless, Canada demonstrated its potential for retaliation, quickly targeting Musk.

Ontario Premier Doug Ford canceled a $68 million contract with SpaceX for Starlink satellite internet service, directly impacting SpaceX's revenue. Furthermore, Canadian Deputy Prime Minister Chrystia Freeland publicly suggested imposing a 100% tariff on Tesla vehicles. While these retaliatory measures were temporarily shelved, they could easily be reinstated if trade tensions escalate. Such countermeasures against Musk's companies are clearly aimed at weakening US resolve in trade disputes.

Musk's political involvement cannot be ignored. He donated approximately $250 million during Trump's reelection campaign and even headed the "Department of Government Efficiency" (a position that proved controversial). These actions have strengthened the ties between Musk and his companies and the US government, making them easier targets for other nations' countermeasures.

Tesla and SpaceX's high valuations make them extremely sensitive to policy changes. Despite declining sales in some markets (particularly those where subsidies have been removed), Tesla's market capitalization is still 11 times its projected 2025 revenue, highlighting investor concerns and sensitivity to the policy environment. Investors widely believe Musk's White House connections will benefit his companies; Tesla's stock price has risen over 50% since the day before the US presidential election. SpaceX, as a government contractor, could also benefit from this political influence.

However, this reliance on political relationships is precarious. Tesla and SpaceXs businesses heavily depend on overseas markets, making them vulnerable to geopolitical risks. Canada serves as a prime example. While Canada's population is only 12% of the US's, its electric vehicle sales are relatively high. Assuming Tesla's Canadian sales are approximately $7 billion (15% of its US sales), based on Tesla's current price-to-earnings ratio, this represents a valuation of $78 billion. This highlights the significant contribution of the Canadian market to Tesla, and how Canadian government countermeasures directly impact Tesla's valuation and profitability.

Other countries possess even greater retaliatory capabilities. For example, China accounted for approximately 20% of Tesla's global sales last year. Strained US-China relations could inflict far greater damage on Tesla. China's vast potential and relatively high sales volume make it a crucial market for Tesla, and any negative impact there would far exceed the losses in Canada.

As a private company, SpaceX's $350 billion valuation relies heavily on its capital-intensive Starlink business. Once Starlink recoups its initial investment, each additional sale significantly boosts profitability. Quilty Space estimates that SpaceX generated approximately $6.6 billion in revenue last year, with EBITDA of $3.8 billion. According to TMF Associates, Canadian users make up over 10% of Starlink's total user base. Cancellation of these orders could result in far greater profit losses than the market anticipates.

The market generally believes Musk's political stance will further boost his companies' valuations, but this optimism overlooks a crucial factor: the influence can also be negative. Close government ties may offer short-term benefits, but they also increase the company's exposure to geopolitical risks. Escalating trade friction or shifts in political relations could severely impact Musk and his companies, potentially crippling their high valuations.

In conclusion, the predicament faced by Musk and his companies reflects the significant challenges that geopolitical risks pose to businesses, especially high-valuation tech companies, in a globalized world. Relying on political connections for advantage is unsustainable. Companies need to focus on diversified market strategies and robust risk management to ensure long-term stability in the complex global economic environment. This reliance on political connections might offer short-term gains but increases long-term risk exposure, making companies more vulnerable to geopolitical shifts. Therefore, businesses need a more comprehensive assessment of the risks and benefits and adopt more robust risk management strategies.