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President Donald Trump’s 25% tariffs on unmade cars in the US and certain auto parts are sending more trembling through industries exercising 25% taxes in Canada and Mexico through industries already baffled by steel and aluminum importers. The new tariffs announced on Wednesday are likely to jack the price of new vehicles, which will also affect the second-hand car market.
For years, Trump has been itching to tax foreign cars. In his first term, he declared that the automobile would import a threat to national security and gave him the power to impose tariffs on them.
During the first few weeks of Trump’s return to the White House, he’s the latest in many of Trump’s operations in the automotive industry. Automobile companies are also navigating fuel economy reversals, dialing greenhouse gas emission standards and many electric vehicle policy rollbacks.
President Donald Trump announced Wednesday that he was leviing a 25% tariff on all cars entering the US.
Here’s what you need to know.
Why is it so difficult for the automotive industry to tackle?
As automakers expanded globally, production, manufacturing and supply chains have expanded as well. Responding to the rapidly changing US trade policy is complicated and confusing.
It is impossible for automakers to rerout overnight procurement of thousands of parts imported into the US, and it takes years to uproot their assembly work. The automotive manufacturing and supply network has been planned and developed for several years, and the industry could be collateralized in Trump’s escalating trade war.
“The industry’s supply chains are global in nature and are optimized around components that travel across borders where free trade agreements existed in the past, adding to the uncertainty that all automakers face.”
This means that auto companies are likely to experience pain from different levels of tariffs, says Sam Fiorani, an analyst at Autoforecast Solutions, analyst who studies the industry.
“European manufacturers primarily deal with luxury vehicles, and their buyers could be forced to adjust their prices, while companies like Toyota, Mazda and Subaru import most of the fleets that are being assaulted,” Fiorani said.
“Polling tariffs on some of the vehicles built in Mexico and Canada that are not sourced from the US will hurt the profits of General Motors, Stellantis and Ford over the next few quarters and cost billions of dollars,” he added.
Customs duties or duties are taxes on products purchased from overseas and are used in virtually all countries.
What does this mean for car buyers and new car prices?
New vehicles were on sale for an average of over $47,000 last month, according to Auto-Purchase Resource Edmunds. Tariffs could increase the prices of new cars by thousands of dollars, but it’s hard to know exactly how much of the spray properties of Trump’s proposed trade policy in a short period of time.
People who buy cars in the US looking for deals should look into which brands have more supply in dealer lots. Last month, top-selling US automotive companies gained an average supply of stock for 58 days, says Edmunds.
Ford, Stellantis and Hyundai had some of the most stocks, while Toyota, Honda and Nissan had the least.
Automakers and their suppliers are now recovering from years of instability brought about by the pandemic-intensive production halt, a drastic semiconductor shortage and low inventory at dealer lots. That is, prices were sky high, incentives were low, and there were very few deals.
During the peak of the pandemic, consumers still bought vehicles at high prices. However, stacked tariffs can put new vehicles out of reach for many buyers. Especially given the growing signs of potentially wider inflation across the economy.
“Nearly instantly, consumers will see that already expensive new vehicles cost hundreds to thousands of thousands and that their prices will escalate further as the supply of many major vehicles drops,” Filani said. “Imagine prices rise during the semiconductor shortage and growing it across all brands and manufacturers.
How about used cars?
Customs duties that increase new vehicle prices could send buyers to second-hand markets. However, with limited stocks used, buyer inflows can also shake up the price of used cars.
According to Edmunds data, the number of lease penetration or lease vehicle transactions averaged around 30% over the past decade.
However, the industry saw a lower lease ratio, particularly between May 2022 and January 2023.
This suggests that demand could outweigh supply just as priced buyers from the new automotive market begin shopping for used vehicles.
How did the industry respond?
Gov. Matt Blunt, chairman of the American Auto Policy Council, which represents American automakers, said in a statement that the manufacturers support Trump’s efforts to boost domestic automobile manufacturing and is committed to working with the administration.
“It is especially important that tariffs be implemented in a way that avoids consumer prices hikes and maintains the competitiveness of the integrated North American auto sector, which has become a key success in the President’s USMCA contract,” he added.
United Autoworkers Union also praised Trump for ending what he called the “free trade disaster.”
“Ending the race to the bottom of the automotive industry started with fixing broken trade deals, and the Trump administration made history with what it is today,” UAW President Sean Fein said in a statement. “These tariffs are a major step in the right direction for autoworkers and blue-collar communities across the country, and are currently in automakers who are trying to get good union jobs back in the US, from Big 3 to Volkswagen.”
However, Jennifer Safavian, president and CEO of Autos Drive America, the representative of international automakers, has denounced the tariffs.
“When costs are the number one concern for American car buyers, US automakers are working to provide consumers with a variety of affordable vehicles,” Safavian’s said. “The tariffs imposed today will make it more expensive to produce and sell cars in the US, ultimately higher prices, fewer consumer options, and fewer manufacturing jobs in the US.”
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Associated Press Reporter Paul Wiseman contributed a report from Washington, DC
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Alexa St. John is a climate reporter for the Associated Press. X: Follow her at @Alexa_stjohn. Contact her at ast.john@ap.org.
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Associated Press Climate and Environmental Insurance receives financial support from several private foundations. AP is solely responsible for all content. Find AP standards for working with Ap.org supporters and charities, a funded coverage area.
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