President Donald Trump announced Wednesday that he would impose 25% tariffs on auto imports. The White House claimed this move would promote domestic manufacturing, but it could also squeeze automakers who depend on the global supply chain.
Trump told reporters that “this will continue to spur the growth.” “We will be imposing a tariff of 25%.”
Even U.S. automobile manufacturers source their parts from all over the world. Tax hikes starting in April could lead to higher prices and lower sales for automakers. Trump, however, is insistent that tariffs will result in more factories being opened in the United States.
To underscore his seriousness, Trump said, “This is permanent.”
General Motors shares fell by about 3% during Wednesday’s trading. Ford’s shares were up slightly. Stellantis shares, which own Jeep and Chrysler, fell nearly 3.6%.
Trump has said for years that tariffs on auto imports will be the defining policy of the Trump presidency. He believes that the increased costs caused by the taxes will encourage more production to move to the United States while also helping to reduce the deficit. U.S. automakers and their foreign counterparts have factories around the globe to meet global demand while maintaining competitive prices. Some critics claim that it will take years to design, build, and open new factories as Trump promises.
Mary Lovely, Senior Fellow at the Peterson Institute for International Economics, said: “We are looking at higher vehicle prices. We’re going to see a reduced selection. This type of tax is more burdensome on the middle class and working class.”
She warned that more families will be priced out of the market for new cars, where prices are, on average, already around $49,000. They will also have to hold onto their aging vehicles.
If tariffs are passed on to consumers in full, the average price of an auto could increase by $12,500. This could lead to a rise in inflation. Trump won the 2020 presidential election because many voters thought he would bring prices down.
Trump said that, as he announced the new tariffs on steel and aluminum, he wanted to offer a new incentive for car buyers. He would allow them to deduct the interest they paid on their auto loans from their federal income tax, provided their cars were made in America. This deduction could potentially reduce the revenue that tariffs might generate.
The auto tariffs form part of Trump’s broader plan to redefine global relations. He plans to implement what he calls a “reciprocal tax” on April 2, which would be equal in amount to the tariffs and sales taxes charged by foreign nations.
Trump has already imposed a 20% tax on all imports coming from China due to its involvement in the production of Fentanyl. Trump imposed tariffs of 25% on Mexico and Canada with a 10% tax on Canadian products. After automakers complained, Trump suspended some of the Mexico and Canada taxes, including those on automobiles.
He has also placed a 25% tariff on all imports of steel and aluminum, eliminating the exemptions from the 2018 metal taxes. He plans to impose tariffs on computer chips, pharmaceutical drugs, and lumber.
Trump’s taxes could spark a global trade war with escalating retaliations. This could hurt global trade and increase prices for businesses and families as importers pass on some of the tax costs. Trump’s response to the European Union’s plan for a tariff of 50% on U.S. Spirits was to impose a tax of 200% on all alcoholic beverages imported from the EU.
Trump intends to impose a 25% tariff against countries that import Venezuelan oil, even though it is also imported by the United States.
Trump’s advisers insist that the tariffs against Canada and Mexico were imposed to stop illegal immigration and drug trafficking. The administration wants to use tariff revenue to reduce the deficit and to assert America’s dominance as the largest economy in the world.
The president cited on Monday plans by South Korean carmaker Hyundai to build a $5.8 billion steel facility in Louisiana as proof that tariffs will bring manufacturing jobs back.
According to the Bureau of Labor Statistics, slightly more than one hundred thousand people work in the United States in the manufacture of motor vehicles and their parts. This is about 320,000 less than in 2000. Another 2.1 million people are employed by auto and parts dealers.
Last year, the United States imported 8 million cars and trucks valued at $244 billion. Mexico, Japan, and South Korea are the main sources of imported vehicles. According to the Commerce Department, Mexico, Canada, and China were the top three sources of imports for auto parts, with more than $197 billion.