President Donald Trump announced he would impose 25% tariffs on imported autos. The White House claims the move would increase domestic manufacturing, but others argue it could strain automakers that depend on global supply chains.
More Details On The Imported Autos Tariff
As mentioned, Trump told reporters on Wednesday (March 26) that the 25% tariff “will continue to spur growth.” The White House expects to raise $100 billion in revenue annually from the tariff.
However, responses to the measure could be complicated, as even U.S. automakers source their parts from around the world. The tax hike, which begins on April 3, could also mean higher costs and lower sales. The tariffs would be on top of any existing taxes, and applies to both imported autos and parts.
Still, President Donald Trump argues that the tariffs will lead to more factories opening in the United States and the end of what he calls a “ridiculous” supply chain that includes auto parts and finished vehicles manufactured across the United States, Canada, and Mexico. The Republican president also emphasized that the 25% tariff is “permanent.”
The president on Monday cited plans by South Korean automaker Hyundai to build a $5.8 billion steel plant in Louisiana. He pointed to that news as evidence that tariffs would bring back manufacturing jobs.
According to the Bureau of Labor Statistics, slightly more than 1 million people are employed domestically in the manufacturing of motor vehicles and parts. That’s about 320,000 fewer than in 2000. An additional 2.1 million people work at auto and parts dealerships. The United States imported nearly 8 million cars and light trucks worth $244 billion last year. Mexico, Japan, and South Korea were the top sources of foreign vehicles. According to the Commerce Department, imports of auto parts totaled more than $197 billion, led by Mexico, Canada, and China.
Auto Industry, Canada, Mexico & Europe React To Tariff
According to the Associated Press, shares in General Motors tumbled roughly 7% in Thursday trading. Ford’s stock fell about 4%. Shares in Stellantis, the owner of Jeep and Chrysler, dropped 1.25%. But the stock prices of electric vehicle makers Tesla and Rivian were up.
The American Automotive Policy Council, which represents domestic automakers, issued a statement about the imported tariff.
“…it is critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector,” the council said.
The group’s president, former Republican Gov. Matt Blunt of Missouri, also emailed the Associated Press: “…we have clearly expressed concerns related to prices and other impacts to the administration as well as our belief that a modernized North American trade agreement should remain in place.”
Foreign leaders were quick to criticize the tariffs. “This is a very direct attack,” Canadian Prime Minister Mark Carney said.
“We will defend our workers. We will defend our companies. We will defend our country,” Carney added.
In Brussels, European Commission President Ursula von der Leyen expressed regret at the U.S. decision to target auto exports from Europe. Leyen vowed that the bloc would protect consumers and businesses.
“Tariffs are taxes — bad for businesses, worse for consumers equally in the U.S. and the European Union,” she said in a statement.
Mexican President Claudia Sheinbaum said Thursday that her country did not want to be drawn into taking positions with each new tariff. However, she said under the trade pact from Trump’s first term “there shouldn’t be any tariffs; that is the essence of the commercial treaty.”
Meanwhile, President Donald Trump reiterated his willingness to challenge allies on tariffs. He stated on Thursday via social media that current tariffs planned for Canada could be “far larger” if the country collaborates with the European Union against the U.S.
Trump has already placed a 20% import tax on all imports from China for its role in the production of fentanyl. He similarly placed 25% tariffs on Mexico and Canada, with a lower 10% tax on Canadian energy products. Parts of the Mexico and Canada tariffs have been suspended, including the taxes on autos, after automakers objected. Trump responded by giving them a 30-day reprieve that is set to expire in April. The president has also imposed 25% tariffs on all steel and aluminum imports. He also plans tariffs on computer chips, pharmaceutical drugs, lumber, and copper.
Will The Cost Of Vehicles Go UP In The U.S.?
Trump has long said that tariffs against imported autos would be a defining policy of his presidency. He has stood on his belief that the costs created by the taxes would cause more production to relocate to the United States while helping narrow the budget deficit.
However, U.S. and foreign automakers have plants around the world to accommodate global sales while maintaining competitive prices. Moreover, it could take years for companies to design, build, and open the new factories that Trump is promising.
“We’re looking at much higher vehicle prices,” said economist Mary Lovely to AP. “We’re going to see reduced choice. … These kinds of taxes fall more heavily on the middle and working class.”
She said more households will be priced out of the new car market and will have to hang on to aging vehicles. Vehicle prices already average about $49,000. If the taxes are fully passed onto consumers, the average auto price on an imported vehicle could jump by $12,500, a sum that could feed into overall inflation. Keep in mind that one incentive for Trump voters was his promise to bring down auto prices.
As Trump announced the new tariffs, he indicated that he would like to provide a new incentive to help car buyers by allowing them to deduct from their federal income taxes the interest paid on auto loans. Those perks will only be for vehicles made in America. That deduction would eat into some of the revenues that could be generated by the tariffs.
Associated Press staff Josh Boak, Rob Gillies in Toronto, and AP Economics Writer Paul Wiseman contributed to this report.
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