President Trump yesterday threatened a third round of tariffs that could dramatically raise car prices in the U.S. Policies that raise new car prices also raise used car prices, as they tend to push would-be new car buyers into the used car market looking for something they can afford.
The Three Tariff Proposals Explained
Round one involves possible tariffs of 25% on all goods imported from Canada and Mexico. Trump initially proposed those for February but delayed them until March. If enacted, they could raise the price of the average new car by at least $3,000, with some full-size trucks seeing $10,000 spikes. Even cars built in the U.S. would see their prices rise, as all vehicles built domestically use imported parts.
Round two involves tariffs on steel and aluminum products. Every car on the market uses large amounts of steel and aluminum. Much of it is produced in the U.S., but some comes from overseas. Those tariffs, the AP reports, “could wreak havoc on American auto manufacturing.”
Now, Bloomberg says, Trump has “ordered his administration to consider imposing reciprocal tariffs on numerous trading partners, raising the prospect of a wider campaign against a global system he complains is tilted against the U.S.”
Retaliatory Tariffs and Punishments for Subsidizing Industries
His proposal would see the U.S. match any tariff other countries place on American products and also punish “non-tariff barriers the nations impose in the form of unfair subsidies, regulations, value-added taxes (VATs), exchange rates and other factors that act to limit U.S. trade.”
Many countries that export cars to the U.S. support their auto industry in some way, so most cars and parts arriving from elsewhere would see their prices rise under the new proposal. The U.S. subsidizes its own auto industry, particularly with supports that help automakers transition to building electric vehicles.
“Imports accounted for roughly half of the U.S. auto market last year,” Bloomberg reports. Even domestic automakers build many cars outside the U.S. and sell them here. GM, for instance, imports 46% of the vehicles it sells.
Cars built domestically use parts that would likely be subject to the new tariffs.
“The U.S. imported about 8 million new passenger cars and light trucks last year, with a total value exceeding $240 billion, according to Commerce Department data,” Bloomberg notes.
Cost Unclear
Analysts haven’t been able to calculate the projected cost the new tariff proposal would add to each car. However, Reuters reports that all three rounds of tariffs could apply to each vehicle and car part.
“Trump’s planned 25% tariffs on all steel and aluminum imports would be added onto other levies on Canadian goods, resulting in a total 50% tariff, a White House official said on Tuesday.”
Most Auto Executives Quiet, but One Speaking Out
Most auto industry executives haven’t publicly commented on the impact of the tariffs, likely hoping to head them off in quiet negotiations. However, Ford CEO Jim Farley has stopped holding back.
He told attendees at a conference in New York on Tuesday that the moves could “blow a hole in the U.S. industry that we have never seen.” Ford provided a transcript of his remarks to The New York Times.
Farley noted that Trump “has talked a lot about making our U.S. auto industry stronger, bringing more production here or innovation in the U.S.”
“If this administration can achieve that, it would be one of, I think, one of the most signature accomplishments,” he said. However, he added, “So far, what we’re seeing is a lot of costs and a lot of chaos.”