President Donald Trump formally announced that 25% tariffs targeting imported autos and auto parts will go into effect on April 3, though final details impacting some Canadian and Mexican imports have yet to be finalized. Trump promised the move will spur significant growth in the domestic auto industry. But many analysts, along with industry officials, warned it could result in a hit to industry sales and earnings, driving many potential customers out of the new vehicle market. Headlight.News has more.
The new Trump tariffs are expected to impact the price of new vehicles sold in the U.S., wherever they are manufactured.
Virtually all foreign made autos and auto parts will begin facing tariffs of 25% starting April 2, President Donald Trump announced on Wednesday, expanding upon earlier expectations that his executive order would initially focus on both Canada and Mexico.
“I think our automobile business will flourish like it’s never flourished before,” Trump said from the White House,
There were signals from a handful of manufacturers that they would shift some production to the United States. But industry experts warned that any major shift could take years to achieve and, in the short-term will increase the cost of all vehicles, including those made in the United States. At a time when prices are at or near record levels, meanwhile, that raises he prospect of lower new car sales and the subsequent loss of American jobs.
The details
Final rules have to be determined covering Mexican and Canadian auto parts and vehicles, such as this Toyota RAV4 produced in Ontario.
“What we’re going to be doing is a 25% tariff for all cars that are not made in the United States,” Trump said during a news conference. “We start off with a 2.5% base, which is what we’re at, and go to 25%.”
The tariff increase covers not only imported vehicles but many foreign-made parts such as engines, transmissions and electrical components. As a result, industry watchers stressed, even those vehicles assembled in the United States are expected to feel the impact since there are no such models that exclusively use American-made parts and components.
There is one exception. The new executive order does not apply to auto parts complying with the rules for tariff-free trade under the USMCA, the United States-Mexico-Canada Agreement negotiated during Trump’s first term in the White House.
The Commerce Department is now charged with setting up a process to cover such components.
Shifting production
The new tariffs will impact “everything” in the auto industry, said Stephnie Brinley, principal auto analyst with S&P Global Mobility. But while she said “We will see automakers
Hyundai has said it will increase U.S. vehicle production and add a steel plant in Louisiana like this one it operates in Korea.
make changes” to their manufacturing plans,” Brinley cautioned “How fast is unclear. Change can be difficult.”
That was echoed by a number of those auto industry officials Headlight.News spoke to. Most spoke on deep background because they were concerned of running afoul of the Trump administration should they be seen as being critical. But the uniform consensus was that only a small amount of foreign-made production will be moved back to the U.S. in the near-term.
“It can take years to set up a new factory,” stressed one senior executive at a foreign-based automaker. And it may not be economically justified, even with the tariffs, he added. In that case, the company might have to continue to face tariffs or, with some products, they simply may be pulled from the U.S. market.
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What consumers are facing
Prices for imported luxury vehicles, like this Mercedes-AMG EQS, could jump $10,000 or more next month.
Vehicles and parts already in the U.S. should not be covered by the tariffs but, with most manufacturers maintaining only a couple months of inventory, the day of reckoning should come by late spring, with prices on almost all automobiles rising substantially.
“The tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers, and fewer manufacturing jobs in the U.S.,” said Jennifer Safavian, CEO of Autos Drive America, a trade for foreign-owned brands including BMW, Hyundai, and Toyota.
Michigan-based Anderson Economic Group previously estimates prices will rise at least $4,000 for a typical SUV or CUV. On some products, that could rise substantially more. Tariffs are based on wholesale, rather than retail, prices. But on a high-end Mercedes-Benz S-Class imported from Germany that could still amount to an additional $20,000 or more.
Even on low-end products, such as a Korean-made Chevrolet TrailBlazer, the impact could be enough to add several $1,000 to the price tag. That could price many entry models out of reach for buyers on a budget, analysts have warned. Many entry models, such as the Honda HR-V and Volkswagen Taos, are produced in Mexico and may escape all, or at least some, of the tariffs depending upon the final rules determined by the Commerce Dept., but Brinley and others caution that added tariffs could simply result in manufacturers dropping such products for their line-up.
What products will be covered
Depending upon final rules set by the U.S. Commerce Dept., some Mexican-made entry models, like this Honda HR-V, could be priced out of the market for many budget buyers.
According to S&P data, 45% of the vehicles sold in the U.S. last year were imported, a figure including those models made in Canada and Mexico.
Final guidelines will determine how many of them will be hit by the new tariffs but the impact should be broad – and severe in a market already struggling with the impact of sticker shock. New vehicle prices, overall, have risen about 40% over the past decade, according to data from tracking service Edmunds. Buyers paid more than $48,000, on average, during February, just short of the all-time record set during COVID when parts shortages and production delays led dealers to frequently tack on fees to make up for lost sales.
Even vehicles, such as a Ford F-150 rolling off the line in Wayne, Michigan, will be impacted. That’s because every model produced in the U.S. today relies on some foreign-made parts and components, whether computer chips from Taiwan, wiring harnesses from Mexico or engines from Europe.
The impact on the auto industry
Automakers are widely expected to suffer declining sales and earnings as a result of the tariffs.
Price hikes will reach “the thousands,” said a senior executive with a foreign manufacturer that already operates plants in the U.S. Asking not to be identified by name or company, he warned the first of the price increases “will happen by mid-April.”
The official also warned that “all affected automakers will bleed money” and that “jobs will be at stake.”
In a handful of cases, manufacturers have signaled they will absorb at least some of the added costs from the new tariffs. Volvo has done that on the little EX30 battery-electric vehicle it imports from China. But other companies have indicated they will pass the higher costs onto consumers.
That is widely expected to result in lower sales, many consumers either being priced out of, or simply choosing to drop out of, the new car market. While sales have been bouncing back from the lows set early in the pandemic they barely reached 16 million in 2024, well short of the 16.1 million sales record set in 2016.
As a result, there is widespread fear among the analysts and industry insiders who spoke to Headlight.News that industry sales will drop going forward, dragging down profits which, for some manufacturers such as General Motors, hit records last year.
Jobs
UAW President Shawn Fain has generally opposed Trump policies but the union praised the new tariffs.
The United Auto Workers Union was one of the few automotive groups and organizations to praise the new auto tariffs. While the union opposed Trump during his election campaign and has voiced concerns about a number of other policies, it issued a statement saying, “We applaud the Trump administration for stepping up to end the free trade disaster that has devastated working class communities for decades.”
But whether the new sanctions work in the favor of American workers remains to be seen. Even before Trump’s announcement there were concerns that the U.S. auto industry was beginning to lose momentum. Cleveland Cliffs, a major steel supplier, said earlier this week it would lay off 600 employees at a plant in Dearborn, Michigan, citing “the current reality of weak automotive production in the U.S.”
While at least some foreign auto production is expected to eventually be shifted to the U.S., there is widespread consensus that the near to mid-term impact of the new tariffs will be slower sales, reduced production and yet more cuts in American auto jobs.
Build them where you sell them!
You’re okay with ending U.S. auto exports?
It will be interesting to see the price going forward on Ford Maverick that was originally touted as a low cost Ford truck option. It has already had multi-thousand dollar price increases. It is built in Mexico.
I’m assuming you’re still happy with yours, Dennis!
Yes, Ford could have a tough time positioning it as an entry model going forward.
Paul E.