Stock markets experienced a decline following the announcement of auto tariffs, with American automaker shares dropping. The S&P 500 fell over 1 percent in mid-afternoon trading, while most auto stocks decreased by approximately 2 percent. Although tariffs might encourage auto companies to establish more factories in the U.S., aligning with President Trump’s goals, they will also increase costs for consumers. Depending on their scope, tariffs could harm the U.S. auto industry by disrupting supply chains, reducing profits, and discouraging investments.
The measure could provoke further trade disputes with foreign countries, particularly European nations, Japan, and South Korea, which export many vehicles to the U.S. Nearly half of all vehicles sold in the U.S. are imported, and almost 60 percent of parts in U.S.-assembled vehicles are imported, according to Bernstein research firm data.
President Trump has increasingly mentioned imposing tariffs on foreign cars, which would significantly expand the economic impact of his trade policies. The auto industry is a major U.S. employer but heavily relies on foreign parts. Car companies have also structured their supply chains across borders with Canada and Mexico. As cars are often the largest purchase for American families, additional costs from tariffs could heavily affect consumers.
Ken Kim, a senior economist at KPMG Economics, noted that new vehicle prices could rise by several thousand dollars due to tariffs. He observed a significant increase in vehicle and parts orders in February as the car industry placed more orders before steel and aluminum tariffs took effect.
The car tariffs would add to other extensive levies Mr. Trump has introduced recently. Since taking office, he has imposed an additional 20 percent tariff on all U.S. imports from China and a 25 percent tariff on goods from Canada and Mexico, exempting roughly half of those imports under the North American trade agreement.
Mr. Trump plans to introduce more levies on April 2, announcing ‘reciprocal tariffs’ matching high tariffs and trade barriers other countries impose on American exports. During his first term, his administration investigated car imports under Section 232, concluding that car imports threatened U.S. national security. Experts suggest Mr. Trump could quickly impose tariffs based on this finding.
Most cars trade under the North American trade agreement, so they aren’t currently facing the 25 percent tariff on other imports from Canada and Mexico. Jonathan Smoke, chief economist at Cox Automotive, stated that 25 percent tariffs on goods from Mexico and Canada would add $3,000 to the cost of a U.S.-built car. Tariffs would add $6,000 to the price of a car made in Mexico or Canada, including models like the Toyota Tacoma pickup, gasoline and electric versions of the Chevrolet Equinox, and several Ram pickups.
Higher prices will deter buyers and force automakers to reduce production, Mr. Smoke said. He estimated U.S. factories will produce 20,000 fewer cars per week, about 30 percent less than usual. About 1 million Americans work in auto and parts manufacturing, and another 2 million work at dealerships. Both groups could be severely impacted by lower auto production and higher prices leading to fewer sales.
There could be a temporary benefit for companies like Ford, Hyundai, and Stellantis with unsold vehicles on dealer lots. Vehicle shortages caused by tariffs will allow them to clear inventory without cutting prices. Carmakers may mitigate some tariff impacts by designing factories to produce different models on the same assembly line.
In an effort to appease the Trump administration, some foreign carmakers have pledged to expand U.S. manufacturing operations. Hyundai Motor Corporation announced it would invest $21 billion in the U.S. over the next four years. Mercedes-Benz also plans to expand its U.S. operations.
— news from The New York Times