President Donald Trump today announced a 25% tariff on all cars built outside the U.S. The move will raise the price of many cars, including models sold by American automakers but built elsewhere.
The tariff would not apply to components, covering only finished cars.
Trump pledged to sign an executive order outlining the tariffs but has not published the text yet. We will update this story when the order is published, allowing our analysts to better explain its impacts.
“Asked if the car tariffs could be removed, Trump says they are permanent,” The New York Times reports.
The tariffs take effect April 2 but may take longer to affect car prices and roll gradually across the automotive market.
Industry publication Automotive News says the move “could cause massive ripple effects throughout global automotive supply chains already reeling from other new levies, retaliatory measures, and a lack of long-term clarity on trade policy.”
The New York Times reports, “Shares of major carmakers fell even further in postmarket trading after President Trump’s announcement of tariffs on imported cars. Ford, which had ended the day modestly higher, fell more than 2%. General Motors tumbled an additional 5%, while Toyota fell almost 2%.”
About Tariffs
A tariff is a tax on imports. The company importing a product pays the tariff. However, most pass it on to consumers in the form of higher prices. A 25% tariff is high enough that automakers will likely not be able to absorb its cost. They must respond by raising prices or by not importing some cars to the U.S.
Cars Already in the Country Are at Pre-Tariff Prices
If you’re car shopping, the tariffs will change what you see at dealerships. But the prices on window stickers may not increase right away.
The cars already on dealer lots were imported at pre-tariff prices. Some dealers may try to negotiate higher prices for those, but shoppers should negotiate knowing that automakers did not pay higher prices to import those cars.
Each automaker has a stockpile of cars already in the country at pre-tariff prices. Post-tariff prices will begin to affect each automaker only after that supply runs out, and they start selling cars imported after April 2.
Some automakers have relatively short supplies. Toyota ended February with a 38-day supply of new cars in the U.S. Honda had 57.
Others have much longer supplies. Ford ended the month with a 126-day stockpile; Dodge with 141. Their supply of cars at pre-tariff prices will last much longer than Toyota’s or Honda’s.
The Badge Doesn’t Tell You Where a Car Was Built
The move’s impact on prices could be complex.
Many domestic automakers build cars outside the U.S. Many foreign automakers build cars inside the U.S. Some of the most common cars are built both inside and outside the country.
Ram, for instance, builds the its Ram 1500 truck in both the U.S. and Mexico. Lincoln imports the Nautilus SUV from China.
Honda, though headquartered in Japan, builds Civics in factories on four continents. Some Civics sold in the U.S. come from American factories; others from Canadian plants.
BMW, a German company, builds some cars for the American market in South Carolina and imports others from Germany and Austria.
Even the best-known study of the “most American cars” makes no distinction between American and Canadian production.
Tariffs Could Affect Used Car Prices, Too
Used car prices tend to rise when new car prices rise, as would-be new car buyers head to used car lots to find something they can afford.
Aimed At Luring Production to the U.S.
Trump has given several justifications for his tariffs, most recently saying they aim to convince automakers to move production to the U.S.
On Monday, he cited media reports that Honda plans to move some Civic production from Mexico to Indiana because of his tariffs. Honda, however, has denied the report.
In a statement, the company said, “We thank President Trump for recognizing our commitment to manufacturing vehicles in America. Honda did not announce plans for a new plant in the U.S. at this time.”
Hyundai announced a commitment to build new factories in the U.S. earlier this week and earned a promise from Trump that it would be exempt from tariffs.
However, Hyundai moving production to the U.S. is nothing new. The company made similar investments in recent years before Trump took office. Many automakers opened factories in the U.S. in response to a law that gives tax rebates to electric vehicle (EV) buyers but requires an ever-increasing percentage of those EVs to be built domestically.
The New York Times notes, “It’s not clear how many of these are old plans that are being recycled, or how many of the plans may not actually materialize.”