Trump and the Car Tariffs

Some detail on Trump’s Car Tariffs. Still not a lot of detail. This is what was proposed. Even with a cut back in the tariff, prices will increase. The threat may and probably will make a great excuse for a price increase also. Oh, we brought this one in early so as to avoid the bulk of the tariff. Even so, this costs us money.

“Analysts: Trump Car Tariffs Could Crash the US Auto Industry,” Plastics Today

President Trump’s plan to impose 25 percent import taxes on cars and auto parts could cause “pure chaos” and a supposed “Armageddon.” My opinion? It will just blowup the economy as many people react in a negative manner. What next?

At a Glance

• Trump executive order levies 25% tax on all imported light vehicles.
• The tariff is estimated to add $5,855 to the price of the average new car.
• Higher prices will collapse US auto sales by 20 percent.

In a move that is disrupting the US auto industry, President Trump has signed an executive order imposing a 25 percent import tax on foreign cars and auto parts as he has long threatened. It is scheduled to take effect April 2, though previously announced tariffs have been paused before their effective date.

This would directly affect nearly four in ten new cars sold in the US, estimated Shoggi Ezeizat, senior analyst of consumer discretionary industries at Third Bridge. “~39% of new vehicles sold in the U.S. were assembled outside the country,” he wrote in a company report.

If these taxes on imported cars and parts do take effect, the result will be explosive for the auto industry, according to analysts. Trump’s stated intent is to incentivize carmakers to return auto assembly to US plants from the plants they operate in Canada and Mexico and to push foreign carmakers to locate even more of their production here.

An additional complication is the source of the components used in the cars, as United States-Mexico-Canada Agreement (USMCA)-sourced cars will only be taxed on their non-US content and USMCA-sourced components may be imported from Canada and Mexico for use in US assembly plants tax-free. “Business is coming back to the United States so that they don’t have to pay tariffs,” Trump asserted during an Oval Office press conference.

“This tariff announcement (in its current form) would send the auto industry into pure chaos and raise the average price of cars between $5k on the low end and $10k to $15k on the high end,” wrote Dan Ives, global head of technology research at Wedbush Securities in a post on X.

While Trump’s stated intent is to support the US auto industry, this action will do more harm than good, both in the short term and in the longer term, Ives said. “Even US automakers that produce cars in the US have ~40%-50% of auto parts that come from abroad,” he pointed out. “A US car with all US parts made in the US is a fictional tale not even possible today.”

Trump’s goal is for them to stop doing that and to source those parts domestically, but if that is possible, it will take time. “In our view, it would take 3 years to move 10% of the auto supply chain to the US and cost hundreds of billions with much complexity and disruption” explained Ives. “The concept of this auto tariff in our view would be a back-breaker and Armageddon for the auto industry globally and throws the supply chain into pure panic mode.”

While the immediate pain will be felt by automakers and dealers, they will pass that pain along to consumers. “We believe this adds up to $100 billion of costs annually to the auto industry and will essentially get passed directly onto the consumer and clearly erode demand on Day 1 of tariffs,” concluded Ives. The winner in our view from this tariff is no one.”

While Ferrari immediately announced a 10% price increase on some models in response to the executive order, it is affordable cars that will be hit the hardest, according to Mark Schirmer, director of industry insights & corporate communications at Cox Automotive. “Significant tariffs focused on the auto industry will disproportionately impact our market’s most affordable vehicles,” he wrote in a LinkedIn post. “Our analysis suggests that 40% of vehicles priced under $40,000 will be directly impacted. Of new vehicles priced under $30,000 – there are 20 of them – 10 will be hit hard.”

Cox Automotive has crunched the numbers and estimates the average increase in price for new vehicles will be $5,855, or 16.6% of an average new-vehicle price, Schirmer said. “Will transaction prices increase by 16%? It’s hard to say. It is likely that not all the costs will be passed directly to buyers, but one reality is hard to ignore: Prices will go up for suppliers, for automakers, and for buyers. The impact on “affordable” vehicles would likely make many of them unviable in the U.S. market.”

Foreign automotive brands will, unsurprisingly, be hurt even more than domestic brands. “Volkswagen is the most at risk, with nearly 44% of its U.S. volume sourced from Mexico,” observed Ezeizat. “Toyota and Stellantis lean heavily on Canadian assembly, while GM, Nissan, and Mazda also depend on Mexican production.”

Companies that make the parts that are used to build cars will also feel the heat. “For Tier 1 suppliers, the tariffs are landing at a time when their negotiating leverage with OEMs is already weak,” he stated. “According to our experts, 20–30% of electronic content in typical components still comes from China, with tariffs likely to raise input costs by 10–20%. Mitigation isn’t feasible in the near term—re-sourcing even one component can cost $50,000 to $100,000 per program due to qualification and testing requirements.”

The result of these increased prices will be fewer sales. Bank of America estimates that US passenger vehicle sales will shrink by 20 percent, or 3.2 million vehicles in a base market of 16 million annual sales. Such a contraction of a major industry would be felt across the US economy. “30 years of free trade blown up,” fumed Cox Automotive’s Schirmer. “Unthinkable.”

Here is the text of the executive order:

Today, 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, addressing a critical threat to U.S. national security.

• President Trump is taking action to protect America’s automobile industry, which is vital to national security and has been undermined by excessive imports threatening America’s domestic industrial base and supply chains.

• The 25% tariff will be applied to imported passenger vehicles (sedans, SUVs, crossovers, minivans, cargo vans) and light trucks, as well as key automobile parts (engines, transmissions, powertrain parts, and electrical components), with processes to expand tariffs on additional parts if necessary.

• Importers of automobiles under the United States-Mexico-Canada Agreement will be given the opportunity to certify their U.S. content and systems will be implemented such that the 25% tariff will only apply to the value of their non-U.S. content.

• USMCA-compliant automobile parts will remain tariff-free until the Secretary of Commerce, in consultation with U.S. Customs and Border Protection (CBP), establishes a process to apply tariffs to their non-U.S. content.

• The President is exercising his authority under Section 232 of the Trade Expansion Act of 1962 to adjust imports to protect our national security.

• This statute provides the President with authority to adjust imports being brought into the United States in quantities or under circumstances that threaten to impair national security.