Washington: US President Donald Trump Wednesday said he was placing 25 per cent tariffs on auto imports, a move the White House claims would foster domestic manufacturing but could also put a financial squeeze on automakers that depend on global supply chains.
“This will continue to spur growth. We’ll effectively be charging a 25 per cent tariff,” Trump told reporters.
The tariffs, which the White House expects to raise USD 100 billion in revenue annually, could be complicated as even US automakers source their components from around the world.
The tax hike starting April means automakers could face higher costs and lower sales, though Trump argues that the tariffs will lead to more factories opening in the United States and the end of what he judges to be a “ridiculous” supply chain in which auto parts and finished vehicles are manufactured across the United States, Canada and Mexico.
To underscore his seriousness about the tariffs directive he signed, Trump said, “This is permanent.”
Shares in General Motors fell roughly 3 per cent in Wednesday trading. Ford’s stock was up slightly. Shares in Stellantis, the owner of Jeep and Chrysler, dropped nearly 3.6 per cent.
Trump has long said that tariffs against auto imports would be a defining policy of his presidency, betting that the costs created by the taxes would cause more production to relocate to the United States while helping narrow the budget deficit.
But US and foreign automakers have plants around the world to accommodate global sales while maintaining competitive prices — and it could take years for companies to design, build and open the new factories that Trump is promising.
“We’re looking at much higher vehicle prices,” said economist Mary Lovely, senior fellow at the Peterson Institute for International Economics.
“We’re going to see reduced choice. These kinds of taxes fall more heavily on the middle and working class.”
She said more households will be priced out of the new car market — where prices already average about USD 49,000 — and will have to hang on to aging vehicles.
The tariffs on autos would start being collected on April 3, Trump said.
If the taxes are fully passed onto consumers, the average auto price on an imported vehicle could jump by USD 12,500, a sum that could feed into overall inflation.
Trump was voted back into the White House last year because voters believed he could bring down prices.
Foreign leaders were quick to criticise the tariffs, a sign that Trump could be intensifying a broader trade war that could damage growth worldwide.
“This is a very direct attack. We will defend our workers. We will defend our companies. We will defend our country,” Canadian Prime Minister Mark Carney said.
In Brussels, European Commission President Ursula von der Leyen expressed regret at the US decision to target auto exports from Europe and vowed that the bloc would protect consumers and businesses.
“Tariffs are taxes — bad for businesses, worse for consumers equally in the U.S. and the European Union,” she said in a statement, adding that the EU’s executive branch would assess the impact of the move, as well as other US tariffs planned for coming days.
As Trump announced the new tariffs, he indicated that he would like to provide a new incentive to help car buyers by allowing them to deduct from their federal income taxes the interest paid on auto loans, so long as their vehicles were made in America.
That deduction would eat into some of the revenues that could be generated by the tariffs.
The new tariffs would apply to both finished autos and parts used in the vehicles, according to a White House official who spoke on condition of anonymity to discuss the taxes on a call with reporters.
The tariffs would be on top of any existing taxes and were legally based on a 2019 Commerce Department investigation that occurred during Trump’s first term on national security grounds.
For autos and parts under the USMCA trade pact applying to the United States, Mexico and Canada, the 25 per cent tariffs would only apply to non-US content.
The administration is reasoning that there is excess capacity at US automakers that will enable them to ramp up production to avoid the tariffs by manufacturing more domestically, with the official noting that automakers have known since the Trump campaign that tariffs were coming.
The auto tariffs are part of a broader reshaping of global relations by Trump, who plans to impose what he calls “reciprocal” taxes on April 2 that would match the tariffs, sales taxes charged by other nations.
Trump has already placed a 20 per cent import tax on all imports from China for its role in the production of fentanyl.
He similarly placed 25 per cent tariffs on Mexico and Canada, with a lower 10 per cent tax on Canadian energy products.
Parts of the Mexico and Canada tariffs have been suspended, including the taxes on autos, after automakers objected and Trump responded by giving them a 30-day reprieve that is set to expire in April.
The president has also imposed 25 per cent tariffs on all steel and aluminum imports, removing the exemptions from his earlier 2018 taxes on the metals.
He also plans tariffs on computer chips, pharmaceutical drugs, lumber and copper.
AP
