Update March 5, 2:30 p.m.: The White House officials announced a one-month tariff exemption for automakers after President Donald Trump imposed them a day earlier. Press Secretary Karoline Leavitt confirmed leaders from General Motors, Ford and Stellantis made the request in a call March 4 with President Trump and added “reciprocal tariffs will still go into effect on April 2, but at the request of the companies associated with USMCA, the President is giving them an exemption for one month so they are not at an economic disadvantage.”
After a month’s delay, President Donald Trump followed on his order that impose 25 percent tariffs on March 4, targeting imports of steel and aluminum as analysts are coming to terms with the effects it will have on the auto industry.
President Trump declared an economic emergency in order to place duties of 10 percent on all imports from China and 25 percent on imports from Mexico and Canada. Energy imported from Canada, including oil, natural gas and electricity, would be taxed at a 10 percent rate. Trump’s order includes a mechanism to escalate the rates charged by the U.S. against retaliation by other countries.
Speaking at a Joint Session of Congress March 4, the President argued his policy “will allow our auto industry to absolutely boom.”
“We’re going to have growth in the auto industry like nobody’s ever seen—plants are opening up all over the place, deals are being made,” said President Trump. “That’s a combination of the election win and tariffs. That, along with our other policies…our auto industry (is) going to boom.”
Short-Term Pain
Trump later added “tariffs are not just about protecting American jobs, they’re about protecting the soul of our country. Tariffs are about making America rich again and making America great again. It’s happening, and it will happen rather quickly. There’ll be a little disturbance. We’re okay with that. It won’t be much.”
A key ally for the auto industry in the Senate is supporting Trump’s efforts. Sen. Bernie Moreno (R-OH) represents a state home to several major automotive assembly plants owned by Stellantis, Ford and Honda as well as numerous component suppliers that could be impacted by the tariffs.
“Trump’s 100 percent right, and all of us should rally around his demand that our two neighbors step up,” said Moreno. “Until they do what they need to do, yes, am I willing to take some amount of short-term pain? Absolutely, 100 percent.”
“Chaos” of Tariffs
A tariff is a tax on imports, or foreign goods, brought into the U.S. The companies importing the goods pay the tariffs. In the past, companies would pass any additional costs on to consumers—raising the cost of vehicles and potentially reducing demand. President Trump has stated previously that the tariffs are needed to stop the flow of fentanyl and immigrants into the U.S. as well as to help bring manufacturing jobs back to the states.
But economists focused on the U.S. auto industry were skeptical that Trump’s economic policy will have the desired effect he is forecasting.
“For economists like myself, the unthinkable is coming true, with tariffs being applied to our free trade partners across North America,” said Jonathan Smoke, Chief Economist for Cox Automotive. “We have no history to study for this, but there will be implications. It is not even clear if the U.S. government has a way to efficiently track the movement of goods and impose duties, but set that aside: Production will be disrupted, supply will be restricted, and prices will go up.”
Earlier this year, Ford Motor CEO Jim Farley characterized the implementation of tariffs as adding “a lot of cost, and a lot of chaos” to the industry.
“Frankly, it gives free reign to South Korean, Japanese and European companies that are bringing 1.5 million to 2 million vehicles into the U.S. that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever,” Farley said. “That’s what I’m talking about with cost and chaos. It’s a little here, a little there, a couple weeks or a couple of months of vehicles crossing the border, components crossing the border, that’s going to be a tariff. This is what we’re dealing with right now.”
USMCA Partners
The auto industry is deeply integrated between the countries that make up the trade agreement among the U.S., Mexico and Canada trade agreement (USMCA)—Mexico imports 49.4 percent of all auto parts from the U.S. and exports 86.9 percent of its auto parts production to the U.S.
Jessica Caldwell, Edmunds’ head of insights, opined that past negotiations with Mexico and Canada have shown these policies quickly can shift. But if the tariffs do hold, the automotive industry won’t be able to adjust overnight.
“In the short term, automakers will need to pull every available lever to minimize disruptions and soften the immediate impact, but there’s no escaping the fact that higher costs will ultimately be passed on to consumers,” said Caldwell. “With vehicle prices already elevated and interest rates remaining high, American car buyers could face an even more challenging road ahead.”
Dollar Cost
Wells Fargo estimates the tariffs would cost the Detroit Big 3 automaker billions of dollars a year. The firm estimates the impact of 5 percent, 10 percent and 25 percent tariffs on General Motors, Ford Motor and Stellantis would collectively be $13 billion, $25 billion and $56 billion, respectively.
Cox Executive Analyst Erin Keating stated new tariffs are “certainly troubling” as the added substantial input costs to automakers which inevitably have to be passed along in some capacity to the consumer.
“Now comes the ultimate test: The industry’s ability to contain the tariff-driven price increases, with the uncertainty of how long these tariffs stay intact and to what degree they are able to be assessed at the border, given the complexity,” said Keating. “Ultimately, it is the volatility in policy that is most damaging to the automakers’ ability to strategize for the future; the uncertainty is far worse than knowing what hand they’ve been dealt.”
Cost Per Car
An a per car basis, S&P estimates a 25 percent duty on a $25,000 vehicle from Canada or Mexico would add $6,250 to its cost—some if not most of which could be passed on to the consumer.
Analysts note the tariffs are being enforced as when supply is tight already, and just as tax refund season approaches critical mass in dollars being distributed to consumer.
“Once prices shift higher, demand will decline,” said Smoke. “Pending on how long this tariff stance lasts, it will also jeopardize the trajectory of the overall economy, further weakening growth potential later in the year.”
Setback After Pandemic Recovery
That is what is most troublesome to those in the industry—many of the key metrics for the auto industry have returning to long-established norms that were disrupted by the pandemic. New-vehicle inventory had mostly recovered from supply-chain shortages, sales volumes and incentives were both increasing and new vehicle price inflation was relatively tame in 2024.
“But here we go again,” said Cox’s Charlie Chesbrough. “Just as the industry seemed to be finding stable ground, new obstacles are thrown in place. How long higher tariffs are held in place is the industry’s big question right now. Higher prices and border disruptions could result in lower volume.”
