President Donald Trump's administration on Wednesday evening announced tariffs of 25% on all cars not made in the U.S. and certain automotive parts, but appeared to omit levies on some car parts.
Trump said the new auto tariffs will be collected starting April 3, which would be a day after his administration is slated to roll out a much-anticipated plan for reciprocal tariffs.
Shares of General Motors Co. $(GM)$ lost 7%, while Chrysler parent Stellantis $(STLA)$ and Ford Motor Co. $(F)$ fell over 4%.
The Trump White House said in a news release that the levies will be imposed on passenger vehicles and "certain automobile parts" such as "engines, transmissions, powertrain parts and electrical components." It added that there would be "processes to expand tariffs on additional parts if necessary."
Parts compliant with the U.S.-Mexico-Canada trade agreement will remain free of tariffs until the Trump administration establishes a process to apply tariffs to their non-U.S. content, according to the White House.
The new tariffs look likely to cause headaches for the auto industry. Companies will have to decide whether to eat the cost of importing vehicles and some parts, pass along the extra expense to buyers, or spend money to set up U.S. factories to assemble vehicles or make some parts.
Factory relocations are tough, Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, said in a recent interview with MarketWatch. Most cars sold in the U.S. that are made in Mexico are cheaper, entry-level vehicles, while companies largely manufacture higher-margin sport-utility vehicles and pickup trucks in the U.S. A key factor in this state of affairs is a 25% U.S. tariff on imported SUVs and trucks that has been in place for 60 years.
"Moving production of vehicles takes a lot of investment and a lot of time. It's not something that can be done quickly," Fiorani said.
Frank DuBois, a professor at American University's Kogod School of Business, has made similar points. Carmakers can't suddenly build a plant in the U.S. and find suppliers for that plant, especially if they don't know if tariffs will be in place over the long term, DuBois told MarketWatch last month.
Trump, on the other hand, was upbeat.
"Right from the beginning, you're going to have a lot of construction jobs, but you're also going to have a lot of automobile jobs. So this is very exciting," the president told reporters Wednesday. When asked about the response from automakers, Trump said: "If they have factories here, they're thrilled. If you don't have factories here, they're going to have to get going and build them, because otherwise they have to pay tax."
One lobbying group, the Alliance for Automotive Manufacturing, offered support for Trump's move. The group's president, Scott Paul, said in a social-media post that a "25% tariff on auto imports isn't the only way to spur more auto plants here, but it is in my view necessary."
All three major U.S. stock indexes SPX DJIA COMP snapped a three-session winning streak to close lower on Wednesday, with the drop pinned on Trump's plan to announce new tariffs on cars.
