Trump's 25% Auto Tariff May Cost U.S. Automakers $5,000 Per Vehicle
1min read President Trump’s recent executive order imposing a 25% tariff on imported cars and auto parts is intended to bring manufacturing back to the U.S. However, this move could have unintended consequences that the industry is not prepared for. The new policy, effective April 3 for vehicles and May 3 for parts, exempts USMCA-compliant vehicles and parts from the full tariff, but the rules are unclear, and the long-term impact depends on how strictly the U.S. enforces content tracking.
Joseph Spak, an auto analyst at ubs, warns that the tariffs will put significant pressure on U.S. automakers. He estimates that traditional automakers like ford and general motors could face additional costs of $4,000–$5,000 per vehicle to offset the tariffs, depending on whether parts are included. This could lead to a decrease in demand for vehicles.
Auto parts from Mexico and Canada are currently exempt from tariffs, but this grace period may be temporary. If parts are included later, the economics of manufacturing outside the U.S. could change rapidly. This could benefit Ford’s U.S.-built F-150 in the pickup truck market, making it more price competitive against GM’s Silverado and Sierra, some of which are assembled in Mexico and Canada. However, even U.S.-based EV makers like Tesla and Rivian are not entirely immune to the tariffs, as not all their components are American-made.
Ask Aime: What's the impact of the new tariffs on US auto manufacturers?
The tariffs could also force automakers to make difficult decisions about capital investment and plant tooling. While GM and Ford have excess factory capacity in the U.S., this capacity is not equipped to produce the necessary vehicles. This could require significant capital investment and time to address. Suppliers, especially smaller ones further down the supply chain, could face the harshest pressure and may not survive a prolonged squeeze, potentially adding to disruption challenges.
The ripple effects of the tariffs could extend to consumers as well. Automakers may initially cut back production in Mexico and Canada, reduce dealer incentives, and eventually raise prices. According to UBS’s modeling, even with partial price increases, sales could fall by 2.5% to 5%, depending on the breadth of the tariffs.
The Trump administration may offer automakers some regulatory relief, such as an auto loan interest deduction on U.S.-made vehicles and potential emissions regulation relaxation. However, nothing is guaranteed yet. As global supply chains hang in the balance, automakers will need to act quickly to stay ahead of the policy curve.
