U.S. President Donald Trump said Wednesday he was placing 25% tariffs on auto imports, a move the White House claims would foster domestic manufacturing but could also put a financial squeeze on automakers that depend on global supply chains.
"This will continue to spur growth,” Trump told reporters. "We'll effectively be charging a 25% tariff.”
The tariffs, which the White House expects to raise $100 billion in revenue annually, could be complicated as even U.S. automakers source their components from around the world. The tax hike starting in April means automakers could face higher costs and lower sales. However, Trump argues that the tariffs will lead to more factories opening in the U.S. and the end of what he judges to be a "ridiculous” supply chain in which auto parts and finished vehicles are manufactured across the U.S., Canada and Mexico.
To underscore his seriousness about the tariffs directive he signed, Trump said, "This is permanent.”
Shares in General Motors fell roughly 3% in Wednesday trading. Ford's stock was up slightly. Shares in Stellantis, the owner of Jeep and Chrysler, dropped nearly 3.6%.
Trump has long said that tariffs against auto imports would be a defining policy of his presidency, betting that the costs created by the taxes would cause more production to relocate to the U.S. 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. 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, senior fellow at the Peterson Institute for International Economics. "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, where prices already average about $49,000 and will have to hang on to aging vehicles.
Trump said the tariffs on autos would start being collected on April 3. If the taxes are fully passed onto consumers, the average price of an imported vehicle could jump by $12,500, which could feed into overall inflation. Trump was voted back into the White House last year because voters believed he could bring down prices.
Foreign leaders quickly criticized the tariffs, indicating that Trump could intensify a broader trade war that could damage growth worldwide.
"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.”
In Brussels, European Commission President Ursula von der Leyen regretted the U.S. decision to target European auto exports and 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, adding that the EU’s executive branch would assess the impact of the move, as well as other U.S. tariffs planned for the coming days.
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 the interest paid on auto loans from their federal income taxes, so long as their vehicles were made in America. That deduction would eat into some of the revenues that could be generated by the tariffs.
The new tariffs would apply to both finished autos and parts used in the vehicles, according to a White House official who spoke on condition of anonymity to discuss the taxes on a call with reporters. The tariffs would be on top of any existing taxes and were legally based on a 2019 Commerce Department investigation that occurred during Trump's first term on national security grounds.
For autos and parts under the USMCA trade pact, which applies to the U.S., Mexico, and Canada, the 25% tariffs would only apply to non-U.S. content.
The administration argues that U.S. automakers have excess capacity that will enable them to ramp up production and avoid tariffs by manufacturing more domestically. An official notes that automakers have known since the Trump campaign that tariffs were coming.
The auto tariffs are part of Trump's broader reshaping of global relations. On April 2, he plans to impose what he calls "reciprocal” taxes that would match the tariffs and sales taxes charged by other nations.
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 and 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, removing the exemptions from his earlier 2018 taxes on the metals. He also plans tariffs on computer chips, pharmaceutical drugs, lumber and copper.
His taxes risk igniting a broader global trade war with escalating retaliations that could crush global trade, potentially hurting economic growth while raising prices for families and businesses as some of the costs of the taxes get passed along by importers. When the EU retaliated with plans for a 50% tariff on U.S. spirits, Trump responded by planning a 200% tax on alcoholic beverages from the EU.
Trump also intends to place a 25% tariff on countries that import oil from Venezuela, even though the U.S. also imports oil from that nation.
Trump's aides maintain that the tariffs on Canada and Mexico are about stopping illegal immigration and drug smuggling. But the administration also wants to use tariff revenues to lower the budget deficit and assert America's preeminence as the world's largest economy.
On Monday, the president cited plans by South Korean automaker Hyundai to build a $5.8 billion steel plant in Louisiana as evidence that tariffs would bring back manufacturing jobs.
Slightly more than 1 million people are employed domestically in manufacturing motor vehicles and parts, about 320,000 fewer than in 2000, according to the Bureau of Labor Statistics. An additional 2.1 million people work at auto and parts dealerships.
Last year, the U.S. imported nearly 8 million cars and light trucks worth $244 billion. Mexico, Japan and South Korea were the top sources of foreign vehicles. Imports of auto parts came to more than $197 billion, led by Mexico, Canada and China, according to the Commerce Department.
