Auto stocks, including those of General Motors and Stellantis, experienced a decline as manufacturers awaited President Trump’s latest tariff announcement on Wednesday. The Dow Jones U.S. auto manufacturers index decreased by 5%, while Tesla saw a drop of 5.6%. Industry estimates predicted that the tariffs could lead to price increases as high as $10,000.
President Trump proceeded with imposing new tariffs of 25% on foreign-made cars and light trucks. Announcing from the Oval Office on Wednesday, he stated that these tariffs would commence on April 2, with collections starting the following day. He clarified that vehicles manufactured within the U.S. would not be affected by these tariffs.
During the press conference, President Trump expressed that these tariffs would result in the construction of numerous auto plants in the U.S., ultimately reducing consumer prices. He hinted at the possibility of implementing measures that would allow consumers to deduct interest payments on auto loans from their tax bills, provided the car is manufactured in the U.S.
Trump assured that the automobile industry would thrive under these tariffs, describing the policy as “permanent” and promising stringent enforcement measures. Initially intended to take effect on March 4, the tariffs were postponed after adjustments were made for imports from Canada and Mexico to minimize the impact on American automotive manufacturers. The grace period allowed these companies time to prepare, as the U.S. imposed 25% levies on imports from these countries but paused tariffs for goods traded under the North American USMCA trade agreement.
Amidst these developments, President Trump extended a grace period for tariffs on auto parts, expanding it to include other goods from Mexico and Canada. In discussions with representatives from Ford, General Motors, and Stellantis, Trump urged companies to commence investing and shifting production to the U.S.
Experts raised concerns that extending tariffs to auto parts, inclusive of steel and aluminum, would significantly increase costs for consumers, manufacturers, and suppliers. They pointed out that adjusting manufacturing supply chains can take years. Statistics from the Associated Press highlighted that approximately 20% of cars and trucks sold in the U.S. were produced in Canada or Mexico. In 2024, vehicles worth $79 billion were imported from Mexico and another $31 billion from Canada. Auto parts imported from these countries amounted to $81 billion from Mexico and $19 billion from Canada.
John Murphy, Senior Vice President at the U.S. Chamber of Commerce, warned that the announced tariffs would negatively impact the U.S. auto industry, jeopardize many American jobs, and potentially diminish manufacturing activities within the country. He pointed out that the automotive sector was already subject to tariffs on steel, aluminum, and imports from Canada and Mexico.
Ken Kim, a senior economist at KPMG, noted in a Wednesday report that there was a 4% increase in orders for vehicles and parts in February, marking the most significant rise in three years. This increase was attributed to the auto industry’s efforts to secure prices before tariffs took effect. According to estimates, the new tariffs could result in price hikes for new vehicles ranging from $2,000 to $10,000, marking a 20% increase on the average transaction price of $48,500. Kim remarked on the “sticker shock” faced by consumers amidst prevailing inflation.
Kim observed that overall spending decreased by 0.3% in February, the most significant decline in seven months, likely due to the uncertain economic outlook influenced by the tariff environment. Scott Lincicome, Vice President of General Economics at the Cato Institute, highlighted that automotive tariffs would not only raise vehicle prices but also negatively impact U.S.-based automakers. He stated that the free trade and investment facilitated growth and stability in the auto industry since the 1990s, a point echoed by various U.S. business groups, including the Alliance of Automobile Manufacturers, the Association of Global Automakers, and others, who opposed the tariffs when they were initially threatened in 2018.
This report was originally featured on Fortune.com.