The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, March 27 (Reuters Breakingviews) - Donald Trump is threatening to drive the U.S. auto industry so hard that the wheels fall off. In a Wednesday press conference, the president announced25% tariffs on cars and parts, endangering a border-hopping global supply chain. The touted tolls could be enough to total carmakers’ collective profit. Autos are strategically valuable, but this goes too far, too fast.
Tariffs on finished cars begin on April 2. Levies on imported engines, transmissions and electrical components that end up in vehicles whose final construction happens stateside will be delayed for up to a month after that. And key parts like those that are shipped from Canada and Mexico and comply with the countries’ free trade pact won’t have any duties applied until Commerce Secretary Howard Lutnick approves an established procedure for verifying U.S.-made content. These pauses could relieve some pressure if extended, not unthinkable for this administration.
Still, even tariffs on finished vehicles would raise $75 billion if they don’t exempt Canada and Mexico, Bernstein analysts reckon. That bites most sharply for carmakers without onshore operations, like Japan’s Mitsubishi Motors 7211.T, whose shares fell 5% in early Tokyo trading. But even Detroit-based stalwarts are affected. General Motors GM.N and Ford Motor F.N assemble 48% and 18% of their cars sold in the U.S. outside the country, respectively, according to Bernstein. And if parts duties do happen, the firm estimates the actual domestic content of Ford’s home-made vehicles at 30%.
The administration certainly expects a big impact, saying that the tariffs could raise $100 billion in annual revenue. Given that roughly 16 million cars were sold in the United States in 2024, and average new-vehicle prices run at about $48,000 according to Cox Automotive data, that would represent around 13% of industry sales. That swamps the industry’s profitability: GM and Ford, for example, sport operating income margins of 8% and 6%.
GM boss Mary Barra has saidthat her company can offset some of the impact, and companies have had time to bring vehicles into the U.S. ahead of the levies. But these temporary measures will ebb. After that, costs will have to be passed on to consumers - which Wedbush analysts think would increase prices by $5,000 to $10,000. With consumers already stretched, such sticker shock may be severe.
There is some rationale to Washington trying to give Detroit a bit of a push. During Trump’s first term, the Department of Commerce found that U.S. automotive industry research and development spending had shrunk to a small share of the global total. As the most obvious real-world application of cutting-edge artificial intelligence in the form of self-driving cars, there are national security implications to losing domestic control. The recent rapid progress Chinese manufacturers have made in both autonomous and electric vehicles has sparked dismay in rivals worldwide.
But the administration is effectively demanding an overnight overhaul of an immensely expensive and complicated supply chain, threatening pure destruction. In economics as on the road, there are good reasons to follow the speed limit.
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CONTEXT NEWS
U.S. President Donald Trump announced that his administration is to impose 25% tariffs on imported cars in a press conference on March 26. The new levies are set to go into effect on April 2, with collections beginning the next day.
Key automotive parts are also slated to be subject to tariffs, but on a date still to be specified, though “no later than May 3,” Reuters reported.
In addition, imports from Mexico and Canada covered under the countries’ free trade agreement will be able to certify their U.S. content for exemption, though non-U.S. content will still be tolled, according to a White House fact sheet. Automobile parts compliant with the agreement will remain tariff-free for now, until Secretary of Commerce Howard Lutnick establishes a process to identify their non-U.S. content.
The US auto trade gap is widening https://www.reuters.com/graphics/BRV-BRV/BRV-BRV/jnpwljzxevw/chart.png
(Editing by Antony Currie and Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))
