President Donald Trump announced he would impose 25% tariffs on all vehicles and foreign-made auto parts imported into the United States. This announcement rocked U.S. automakers and their global rivals on Wednesday.
The new levies could add thousands of dollars to the cost of an average U.S. vehicle purchase if kept for an extended period. They could also impede car production across North America.
Car makers developed intertwined manufacturing operations across Canada, Mexico, and the United States over the last three decades. That will be the reason for the impact of the tariffs.
Nearly half of all cars sold in the U.S. last year were imported, according to research firm GlobalData.
Shares of General Motors slumped 8% in after-market trading in response to the news. Shares in Ford and U.S.-traded shares of Chrysler-parent Stellantis fell about 4.5% each.
Shares in Toyota Motor, Honda Motor and Hyundai Motor all fell between 3% and 4% in Asia. Tesla makes all the cars sold in the United States locally, but with some imported parts.
Shares in Tesla were down 1.3%. Trump said the duties announced on Wednesday could be a net neutral or even good for Tesla.
He added that its CEO, and his close ally, Elon Musk, did not advise him regarding auto tariffs.
Musk said in a post on X following the news that the tariffs would also affect Tesla. “This will affect the price of parts in Tesla cars that come from other countries,” he wrote in another post on X. “The cost impact is not trivial.”
The companies did not immediately return emails seeking comment.
Trump’s tariffs and threats to impose them have sowed uncertainty in businesses and roiled global markets since he returned to the White House in January.
U.S. President Donald Trump said Wednesday that a 25% tariff for imported cars is coming April 3, a trade war escalation he’s been threatening for weeks.
Trump reiterated that he expected the auto tariffs to prompt automakers to boost investment in the United States, instead of Canada or Mexico, on Wednesday.
Autos Drive America represents major foreign automakers such as Honda, Hyundai, Toyota and Volkswagen. The group said that “the tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers, and fewer manufacturing jobs in the U.S.”
Automakers in North America have largely enjoyed free trade status since 1994. Trump’s 2020 U.S.-Mexico-Canada Agreement (USMCA) imposed new rules designed to spur regional content production.
Trump clamped tariffs of 25% on Mexico and Canada in early March but allowed a one-month reprieve for vehicles produced in compliance with the terms of his USMCA. This benefited American companies.
The new rules do not extend that reprieve.
Sam Fiorani, analyst at AutoForecast Solutions, said, “Companies that have invested hundreds of millions and billions of dollars on plants in Canada and Mexico will likely see their profits cut dramatically over the next few quarters, if not into a couple years.”
“We’re going to look at adjusting our sales and production forecasts because this will throw everything into chaos.”
The White House said that 25% tariffs on automotive parts imported to the U.S. would take effect no later than May 3. These tariffs would tax key items such as engines, transmissions, powertrain parts, and electrical components.
The White House said importers of automobiles under the USMCA will get the chance to certify their U.S. content. Only non-U.S. content will be taxed. Cox Automotive is an automotive services provider.
Before the unveiling of the new tariffs, Cox Automotive predicted they would add $3,000 to the cost of a U.S.-made vehicle and $6,000 on vehicles made in Canada or Mexico, without exemptions.
Cox expects disruption to “virtually all” North American vehicle output if tariffs go through by mid-April. This would lead to 20,000 fewer vehicles a day, or a hit of about 30% to production.
The United Auto Workers union represents factory workers at Big Three Detroit automakers. The UAW praised Trump’s action.
UAW President Shawn Fain said in a statement, “With these tariffs, thousands of good-paying blue collar auto jobs could be brought back to working-class communities across the United States within a matter of months, simply by adding additional shifts or lines in a number of underutilized auto plants.”
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