President Trump will announce car rates Wednesday afternoon, White House spokesperson Carolyn Leavitt said in a briefing with White House reporters.
The details of the tariffs remain unknown, including how widely they apply. Those familiar with the issue said auto parts would be exempt from customs duties, but warned that details of the policy would determine the final impact.
The stock market has led to news that tariffs will be imposed on cars, leading to a decline in stocks in American car manufacturers. The S&P 500 fell more than 1% in mid-afternoon trading. Most of the car stock was down.
Tariffs can encourage auto companies to establish more factories in the US, Trump’s main goal. But they also translate to higher costs for consumers. Also, depending on how widely they are imposed, tariffs can backfire, disrupting the supply chain of automakers, hurting the US auto industry by squeezing profits and reducing investments.
The measure could also cause more trade clashes with foreign countries, particularly European countries, Japan and South Korea, and the companies will send more cars to the US.
Data from Wall Street research firm Bernstein shows that nearly half of all vehicles sold in the US are imported, with almost 60% of the parts of vehicles assembled in the US being imported.
The idea that imposes tariffs on foreign cars is the president’s mention more frequently in recent weeks, and will greatly expand the economic impact of his trade moves.
The automotive industry is a major US employer, but it relies heavily on foreign parts. The automotive company has also set up supply chains for snakes across the border with Canada and Mexico. And cars are often the only biggest purchase for American families. In other words, additional costs from customs duties are heavy on consumers.
Ken Kim, a senior economist at KPMG Economics, said in a memo on Wednesday that industry estimates would see prices for new vehicles rise by several thousand dollars. Due to customs duties. He said he saw “a fair jump” in ordering vehicles and parts in February. This is because the automotive industry placed more orders before it became involved in steel and aluminum.
Car tariffs will add to the other vast taxes Trump has introduced in recent months. Since taking office, Trump has placed an additional 20% tariff on all US imports from China. He also imposed a 25% tariff on almost all goods from Canada and Mexico before exempting them from about half of imports traded under the rules of the North American Trade Agreement.
Trump plans to introduce more taxes when he said on April 2 that he would announce “mutual tariffs” that are consistent with the high tariffs and other trade barriers other countries place on US exports.
During Trump’s first term, his administration conducted an investigation into car imports under legal authority known as Section 232, and concluded that car imports threatened US national security. Experts said Trump might be able to abandon the discovery and move quickly to impose tariffs.
Although not all, cars are traded under the North American trade agreement, they currently do not face 25% tariffs on other imports from Canada and Mexico. With the exception of cars or components, a 25% tariff on goods from Mexico and Canada adds $3,000 even to the cost of vehicles built in the US, says Jonathan Smoke, chief economist at market research firm Cox Automotive. Automakers rely on Mexican and Canadian components.
According to COX estimates, tariffs add $6,000 to the price of a car made in Mexico or Canada. The RAM is owned by Stellantis and also produces Dodge, Chrysler and Fiat Vehicles.
Higher prices will block buyers and force automakers to cut production, Smoke said. He estimated that U.S. factories produce 20,000 cars a week, or about 30% less than usual.
“By mid-April, we expect disruptions in almost all North American vehicle production,” Smoke said in a conference call with clients and reporters on Wednesday. “Conclusion: Lower production, narrower supply, rising prices are turning the corner.”
According to the Bureau of Labor Statistics, around one million Americans are employed by car and parts manufacturers, and another two million are employed by dealers who sell cars and parts. Both groups could be hit hard by lower car production and higher prices that lead to lower sales.
There could be temporary benefits for businesses, including Ford, Hyundai and Stellarantis, where there are numerous unsold vehicles in the dealer lot. Vehicle shortages caused by customs duties allow stock to be cleared without lowering prices. But profits are short-lived.
Automakers may be able to blunt some of the impact from tariffs as they designed their factories to produce different models on the same assembly line.
“Modification in production is always an option,” said Jorg Baser, a member of the management committee of Mercedes-Benz, which oversees production at a German car manufacturer.
However, it is impossible for Mercedes to completely avoid the impact of tariffs. This will add a significant price to the new car. In an interview last week in Berlin, Burzer said tariffs “will definitely increase costs.”
To appease the Trump administration, some foreign automakers have pledged to expand their manufacturing operations in the United States.
Hyundai Motor Corporation said it would invest $21 billion in the US over the next four years at the White House on Monday at the White House. The Korean company, which already has large factories in Georgia and Alabama, said the new investments include factories in Louisiana that produce iron for Hyundai, Kia and Genesis vehicles.
Mercedes-Benz, which produces SUVs in Alabama, is planning to expand its operations in the US, Mercedes CEO Ora Karenius said in an interview in Rome this month. “We are 100% committed to the US, and we continue to do so and we want to do more,” Källenius said.
Celenius acknowledged that there is an imbalance between the tariffs that Europe and the US impose on automobile imports. The US will charge 2.5% tariffs on cars from Germany and other European Union countries, and the European Union will charge 10% tariffs on American vehicles.
“Would you like to go to Zero Zero?” asked Mr. Celenius.
