Washington, Mar 27: US President Donald Trump on Wednesday said he was placing 25 per cent 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. We’ll effectively be charging a 25 per cent tariff,” Trump told reporters.
The tariffs, which the White House expects to raise USD 100 billion in revenue annually, could be complicated as even US automakers source their components from around the world.
The tax hike starting April means automakers could face higher costs and lower sales, though Trump argues that the tariffs will lead to more factories opening in the United States and the end of what he judges to be a “ridiculous” supply chain in which auto parts and finished vehicles are manufactured across the United States, Canada and Mexico.
To underscore his seriousness, Trump said, “This is permanent.”
Shares in General Motors fell roughly 3 per cent in Wednesday trading. Ford’s stock was up slightly. Shares in Stellantis, the owner of Jeep and Chrysler, dropped nearly 3.6 per cent.
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 United States while helping to narrow the budget deficit.
But US and foreign automakers have plants around the world to accommodate global sales while also maintaining competitive prices — and 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 USD 49,000 — and will have to hang on to aging vehicles.
The tariffs on autos would start being collected on April 3, Trump said.
If the taxes are fully passed onto consumers, the average auto price could jump by USD 12,500, a sum that could feed into overall inflation.
Trump returned to the White House after losing the 2020 election in large part because voters believed he could bring down 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, 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 auto tariffs are part of a broader reshaping of global relations by Trump, who plans to impose what he calls “reciprocal” taxes on April 2 that would match the tariffs, sales taxes charged by other nations.
Trump has already placed a 20 per cent import tax on all imports from China for its role in the production of fentanyl.
He similarly placed 25 per cent tariffs on Mexico and Canada, with a lower 10 per cent 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 per cent 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 European Union retaliated with plans for a 50 per cent tariff on U.S. spirits, Trump responded by planning a 200 per cent tax on alcoholic beverages from the EU.
Trump also intends to place a 25 per cent tariff on countries that import oil from Venezuela, even though the United States 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 the tariff revenues to lower the budget deficit and assert America’s preeminence as the world’s largest economy.
The president on Monday cited plans by South Korean automaker Hyundai to build a USD 5.8 billion steel plant in Louisiana as evidence that tariffs would bring back manufacturing jobs.
Slightly more than one million people are employed domestically in the manufacturing of motor vehicles and parts, about 320,000 fewer than in 2000, according to the Bureau of Labor Statistics.
Another 2.1 million people work at auto and parts dealerships.
The United States last year imported nearly 8 million cars and light trucks worth USD 244 billion. Mexico, Japan and South Korea were the top sources of foreign vehicles.
Imports of auto parts came to more than USD 197 billion, led by Mexico, Canada and China, according to the Commerce Department. (AP)
