President Trump said Wednesday that he would impose a 25 percent tariff on cars and car pieces that imported to the United States, a movement that could encourage the production of the United States cars to longer, but it is likely to throw global supply chains in disorder and increase the prices of Americans who buy a car.
Tariffs will enter into force on April 3 and will apply both to cars and finished trucks that are sent to the United States and the imported parts included in cars assembled in US car plants. These tariffs will reach foreign brands, as well as Americans, such as Ford Motor and General Motors, which assemble some cars outside the country, even in Canada or Mexico.
Almost half of all vehicles sold in the United States are imported, as well as almost 60 percent of the pieces in vehicles gathered in the United States. That means that rates could significantly increase car prices when inflation has already made cars and trucks more expensive for US consumers.
During comments at the White House, Trump said tariffs would encourage car companies and their suppliers to establish a store in the United States.
“Anyone who has plants in the United States will be good,” he said.
But the automotive industry is global and has been built around the commercial agreements that allow factories from different countries to specialize in certain parts or types of cars, with the expectation that they would face little or no tariff. That has been particularly true for North America, where national car sectors have been united by commercial agreements since the 1960s.
Securities markets fell into the news that automatic tariffs would be imposed. The actions of the main cars manufacturers further fell into trade at time, after the White House clarified that tariffs would also cover imported cars. General Motors fell almost 7 percent and Ford and Stellantis were more than 4 percent lower after the markets closed. Tesla shares fell 1 percent in the extended trade.
Although Trump argues that tariffs will increase national production, it is not clear how that goal will be achieved immediately. Tariffs can encourage companies to use more products in the United States and expand production, but new factories generally take several years and can cost billions of dollars to build.
Meanwhile, the additional costs that tariffs will introduce could be economically counterproductive, damaging the United States automotive industry by interrupting their supply chains, pressing their profits and cooling their ability to make new investments.
The measure could also trigger more commercial confrontations with foreign countries, particularly European nations, Japan and South Korea, whose companies send many cars to the United States.
Economics capital economists said rates could boost national investment and production. “However, in the short term, it will be inflationary and, assuming that national producers respond by substantially increasing their own prices, could make new vehicles a luxury article,” they said.
The Canada Chamber of Commerce said in a statement that automatic tariffs would harm the United States and other countries.
“Throw tens of thousands of jobs on both sides of the border will mean renouncing the automatic leadership of North America, instead encouraging companies to build and hire anywhere else, but here,” they said. “This tax increase puts plants and workers at risk for generations, if not forever.”
Some groups praised rates. In a statement, the president of the United car workers union, Shawn Fain, said the tariffs “would end the free trade disaster that has devastated working class communities for decades.”
“Finishing the race in the background in the automotive industry begins with the repair of our broken trade agreements, and the Trump administration has made history with today’s actions,” he said.
The administration said that the 25 percent rate would apply to both cars and cars made in Canada and Mexico, despite the United States commercial agreement signed with those nations. He created a small exception to those taxes, say that any content or material that originated in the United States but joined the cars ending in Canada and Mexico would be exempt.
According to an administration official, if a Mexican car is sent to the United States with 50 percent of US pieces and 50 percent of foreign pieces, the 25 percent rate will be applied only by foreign parts, by an effective tariff of 12.5 percent.
While the taxes will take effect on April 3, Canada and Mexico will obtain a brief respite in the automatic parts that come to the United States. That is due to the complexity involved in determining how much of these parts come from the United States.
Automotive companies have established their supply chains to serve through the borders with Canada and Mexico. These supply chains feed on US car factories.
Around one million Americans are employed by car manufacturers and parts, according to the Office of Labor Statistics, and two million more are used in concessionaires who sell cars and parts. Both groups could be affected by lower car production and higher prices that lead to less sales. And cars are often the largest purchase for American families, which means that additional tariff costs could weigh consumers a lot.
Trump’s decision to impose car rates increases its aggressive commercial approach. Since he arrived at office, he has put an additional tariff of 20 percent over all American imports in China. He also imposed a 25 percent tariff on almost all the assets of Canada and Mexico, before exempting approximately half of those imports, which trade under the rules of the North American Commercial Agreement.
Trump plans to introduce more levies next Wednesday, when he said, he will announce “reciprocal tariffs” that coincide with the high rates and other commercial barriers that other countries impose on US exports. Trump said Wednesday that tariffs would be “very fair” and “very pleasant.”
“We are going to do it very indulgent,” he said. “I think people will be surprised.”
Mr. Trump’s cars rates will be imposed under an old commercial case, which used a legal authority related to national security known as section 232. During their first mandate, its administration carried out an investigation into car imports and concluded that they threatened the national security of the United States.
The White House sought to deliver an early refutation to the concerns that the president’s new automatic tariffs could lead to an important increase in car prices. The official pointed to Mr. Trump’s impulse to ensure a new tax deduction for interest payments on cars, which would be limited to US cars. They also said that Trump was working to try to reduce gasoline prices.
Before the details of the tariffs, Jonathan Smoke, chief economist of Cox Automotive, a market research firm, estimated that a 25 percent rate on the goods of Mexico and Canada would add $ 3,000 even to the cost of a car built in the United States.
The tariffs would add $ 6,000 on average to the prices of cars performed in Mexico or Canada, a category that includes vehicles such as the Toyota Tacoma truck, gasoline and electric versions of Chevrolet Equinox and several RAM truck models, according to Cox estimates. RAM is owned by Stellantis, which also produces Dodge, Chrysler and Fiat vehicles.
The highest prices will deter buyers and force car manufacturers to reduce production, Smoke said. He estimated that US factories would produce 20,000 cars less per week, or approximately 30 percent less than usual.
“In mid -April we expect the interruption of practically all the production of American vehicles,” Smoke said Wednesday at a telephone conference with customers and journalists. “In a nutshell: the lowest production, the closest offer and the highest prices are just around the corner.”
There could be a temporary benefit for companies, including Ford, Hyundai and Stellantis, which have a large number of vehicles not sold in concessionaire lots. The scarcity of vehicles caused by tariffs will allow them to eliminate inventory without reducing prices. But the benefit would be short duration.
Automobile manufacturers can print part of the impact of tariffs because they have designed factories to produce different models in the same assembly line.
“The changes in production are always an option,” said Jörg Burzer, a member of the Mercedes-Benz Administration Board that supervises production in the German car manufacturer.
But it will not be possible that Mercedes completely avoids the impact of tariffs, which will substantially add to the prices of new cars. The tariffs “would definitely increase the cost, that is clear,” Burzer said in an interview in Berlin last week.
In an effort to appease the Trump administration, some foreign car manufacturers have pledged to expand their manufacturing operations in the United States.
Hyundai Motor said during an event with Trump in the White House on Monday that he would invest $ 21 billion in the United States in the next four years. The South Korean company, which already has large factories in Georgia and Alabama, said the new investments would include a factory in Louisiana to produce steel for Hyundai, Kia and Genesis cars.
Mercedes, which produces SUV in Alabama, plans to expand its US operations, said Ola Källenius, its executive director, in an interview in Rome this month. “We are 100 percent committed to the United States and we will continue to be like this and we are ready to do more,” he said, without giving details.
Mr. Källenius acknowledged that there was an imbalance between the rates that Europe and the United States imposed on automotive imports. The United States charges a 2.5 percent tariff on Germany cars and other countries in the European Union, while the European Union charges a 10 percent rate on US cars.
“Why not be zero?” Mr. Källenius asked.
