WASHINGTON — One week before the United States is expected to impose reciprocal tariffs on all of its global trading partners, President Donald Trump announced that auto tariffs will be 25% on foreign-made cars and light trucks.
The tariffs will take effect on April 2 he said before signing an executive order designed to spur increased domestic car manufacturing.
“If you build your car in the U.S. there is no tariff. That means a lot of companies will be in great shape because they’ve already built their plants,” Trump said. “I think our automobile businesses will flourish like it’s never flourished.”
Trump posted on Truth Social Wednesday morning about “protecting and bringing back American auto jobs.” He cited Hyundai’s announcement on Monday that it will invest $20 billion in the U.S. over the next four years, including $5.8 billion for a new steel factory in Louisiana. The post said Volkswagen is considering bringing its Audi and Porsche production to the U.S. and that Nissan is considering moving its production from Mexico to the U.S.
The news comes amid a slowing but still growing economy that is expected to yield between 15.6 and 16.3 million new vehicle sales this year. In December, prior to Trump taking office, Cox Automotive forecast new vehicle sales of 16.3 million this year, building on strong consumer and auto dealer sentiment over the last half of 2024 when inflation was falling and interest rates were expected to decline.
Prior to Wednesday’s tariff announcement, however, analysts with Cox Automotive said uncertainty about the U.S. auto market had been growing dramatically over the last two months amid Trump’s threatened tariffs. About 44% of new vehicles sold in the U.S. are imported, according to Cox.
Trump’s imposition of a 25% tax on steel and aluminum imports on March 12 and a 20% tax on all Chinese imports has already increased vehicle prices by $300 to $500.
Even more tariffs will result in lower production, less vehicle supply, higher prices and fewer sales, according to Cox Automotive Chief Economist Jonathan Smoke. If the tariffs take effect April 2, by mid April, Smoke expects disruption to almost all North American vehicle production, resulting in 20,000 fewer vehicles produced per day – a 30% reduction. Longer term not only would vehicle sales fall but new and used prices would increase and some models would be eliminated.
More than 50% of auto bodies and parts are imported from Mexico and Canada, according to the U.S. International Trade Commission. Mexico and Canada also account for about 43% of motor vehicles exported to other countries from the United States.
On Wednesday, Trump said companies shouldn't just build their cars in the United States but all the parts that are used in those cars. He said a lot of the Big Three's parts divisions will need to move back to the United States from Mexico and Canada.
“Substantial change in trade through massive increases in tariffs will be highly disruptive to North American global vehicle production and lead to a trade war,” Smoke said Wednesday morning in the firm’s quarterly update on the auto market.
Prior to Trump’s tariff announcement, Smoke said a 25% tax on Canada and Mexico was likely to increase new vehicle prices by 17%. The average transaction price for a new passenger vehicle in January was a near-record $48,039.
With a 25% tariff, prices would increase an average of about $8,000. Prior to global supply chain issues during the COVID pandemic that decreased vehicle supply and jacked up costs, the average transaction price for a new vehicle in 2019 was $38,363.
Earlier this month, President Trump gave the Big Three Detroit automakers — Ford, General Motors and Stellantis — a one-month exemption from 25% tariffs on imports from Canada and Mexico if their vehicles were compliant with the United States-Mexico-Canada Agreement that Trump signed during his first term. According to Cox, about 92% of vehicles imported from the two countries currently meet the rules.
When Trump granted the extension, it was with the understanding that even compliant vehicles could still be subject to a 25% tax on April 2, when reciprocal tariffs to match other countries’ rates are expected to kick in for all United States trading partners.
The auto industry represents 3% of U.S. gross domestic product and supports 4.5% of all private-sector U.S. jobs, employing about 9.7 million workers, according to the Alliance for Automotive Innovation.
On Tuesday, the United Auto Workers Union released a video called “NAFTA sucks,” and called for a renegotiation of the USMCA, which it said “has not stopped the bleeding of good auto jobs from Michigan to Tennessee and beyond.” It said the Trump administration tariffs could be a step in the right direction.
