President Donald Trump’s Auto Tariffs Set to Take Effect

After several delays, Trump’s auto tariffs are finally poised to roll out next week, potentially making the purchase of a new vehicle significantly more costly. The 25% tariffs on all imported passenger vehicles and essential automotive parts will come into effect on April 2, resulting in a notable decline in foreign and domestic auto stocks.

Impact on Prices

Financial analysts have consistently warned that these tariffs are likely to raise car prices substantially as the US automotive industry reacts. A recent note from Wedbush analysts indicated that the tariffs would act as “a hurricane-like headwind” for both foreign and many US automakers, leading to an average price increase of $5,000 to $10,000 depending on the make, model, and price point. Analysis from the Anderson Economic Group estimates that the price increases could range from $4,000 to $12,000 based on the type of vehicle, with electric vehicles (EVs) being particularly affected due to their reliance on imported batteries and electronics.

Effects on Auto Manufacturers

Cox Automotive also forecasted that tariffs on imports from Canada and Mexico would increase the cost of US-made vehicles by over $3,000, in addition to projected increases of $300 to $500 due to existing tariffs on steel and aluminum, as well as a 20% tariff on all Chinese imports. Major US automakers, represented by the Alliance for Automotive Innovation, have previously warned that these proposed import taxes could lead to car price increases of up to 25%.

Companies including GM and Ford, alongside foreign manufacturers such as Toyota, Nissan, and BMW, have considerable production operations in Mexico and are therefore likely to experience adverse effects from the tariffs. According to analysts at Barclays, the 25% tariffs on auto imports could effectively eliminate profits for Ford, GM, and Stellantis, while US-based automakers like Tesla, which still source many components from abroad, will also feel the impact as the tariffs apply to parts such as engines, powertrain components, and electrical systems. It has been reported that 20% to 25% of the components in Tesla’s 2025 models will originate from Mexico.

Global Reactions

Following the tariff announcements, shares of foreign automakers took a hit, with companies like Nissan, Toyota, and Honda experiencing declines between 1.5% and 3.5%. In Europe, stocks for BMW and Volkswagen saw slight decreases, while Mercedes-Benz shares dropped 2%.

Economists have cautioned that raising the tariff on cars imported from Europe to 25% from the current 2.5% could result in a sharp reduction in the number of vehicles shipped across the Atlantic. A report from Oxford Economics published in January projected a 7.1% drop in automotive exports from Germany and a 6.6% reduction from Italy as a consequence of the tariffs. Germany’s auto industry, already facing challenges with excess capacity, could see a 5.3% decrease in overall automotive production.

Potential Retaliation

Historically, US tariffs on vehicles manufactured in China have led European carmakers to delay new model launches in the US, and some Chinese automakers like BYD have chosen to forgo the US market altogether. The Trump administration’s latest escalation in trade tensions raises concerns that European, Japanese, and South Korean markets might respond with tariffs on US car exports. Following the announcement of the 25% auto tariffs, Japan’s prime minister indicated that “every option” would be considered in their response. Meanwhile, Germany’s economy minister called for a “decisive response” from the EU, and South Korea plans to announce emergency measures in the coming month.