Trump Tariffs Propose 25% tax on Foreign-built autos, parts

Next week, the Trump tariffs will take effect with a 25% tax on foreign-built automobiles and certain automotive parts. This tariff is aimed at improving national security, reducing trade deficits and creating more jobs in the U.S.

The announcement earlier this week was met with applause and criticism with organizations like the United Auto Workers applauding the decision while economic analysts shared concerns over the economic impact of the tariffs.

For months now, an automotive tariff has been proposed and then pushed off to a future date. Now it seems the date has been set and they will take effect.

What are the Trump Tariffs?

After the announcement, Trump officials released a fact sheet on Whitehouse.gov detailing the plans. 

It states “the 25% tariff will be applied to imported passenger vehicles (sedans, SUVs, crossovers, minivans, cargo vans) and light trucks, as well as key automobile parts (engines, transmissions, powertrain parts, and electrical components), with processes to expand tariffs on additional parts if necessary.”

The fact sheet details the reasoning why the tariffs have been announced as well as lays out the arguments on how tariffs are a good thing largely based on the 2018 tariffs imposed on China and the steel and aluminum industry. These tariffs were kept in place by President Biden.

There are also several facts the administration says that shows why the U.S. needs tariffs and how the import of vehicles has damaged the U.S. automotive manufacturing capacity. It further states various trade agreements like the United States, Mexico and Canada agreement, negotiated and signed during President Trump’s first term, didn’t do enough to rectify the trade balance. 

Specifically, the fact sheet says out of the 16 million vehicles sold last year about half of those were imports. They compare this number to back in 1985 when out of 11 million vehicles sold in the U.S. over 97 percent were built in the U.S.

It states the loss of automotive manufacturing is a national security threat. There is no explanation of this idea, but one can assume this refers to when the automotive plants were used to build military vehicles and weapons of war during World War II.

The document also states the automotive parts industry had “approximately 553,300 jobs in 2024, a decline of 286,000 jobs or 34% since 2000.”

Why tariffs?

The document states tariffs have worked and they say several studies detail their successes based on the tariffs imposed in 2018. 

These studies show the economic impact of those tariffs didn’t raise inflation and were good for the economy according to the document. 

The studies are:

• A 2024 study on the effects of President Trump’s tariffs in his first term found that they “strengthened the U.S. economy” and “led to significant reshoring” in industries like manufacturing and steel production.
• A 2023 report by the U.S. International Trade Commission that analyzed the effects of Section 232 and 301 tariffs on more than $300 billion of U.S. imports found that the tariffs reduced imports from China and effectively stimulated more U.S. production of the tariffed goods, with very minor effects on prices.
• According to the Economic Policy Institute, the tariffs implemented by President Trump during his first term “clearly show[ed] no correlation with inflation” and only had a temporary effect on overall price levels.
• An analysis from the Atlantic Council found that “tariffs would create new incentives for US consumers to buy US-made products.”
• Former Biden Treasury Secretary Janet Yellen affirmed last year that tariffs do not raise prices: “I don’t believe that American consumers will see any meaningful increase in the prices that they face.”
• A 2024 economic analysis found that a global tariff of 10% would grow the economy by $728 billion, create 2.8 million jobs, and increase real household incomes by 5.7%.

The tariffs are set to take effect on April 2, 2025 and will be part of a larger announcement called “Liberation day.”

Criticism of the tariffs

While many economists are focused on the economic impact of these proposals and Ford CEO Jim Farley blunting stating they will “blow a hole” in the industry, the nonpartisan, nonprofit TaxFoundation.org analyzed the tariffs to determine how they really impacted the economy from those directly and those indirectly hit by them.

Their conclusion is “2018-2019 trade war tariffs imposed by Trump and retained by Biden reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs.”

They further state the “Academic and governmental studies find the Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy.”

Also, they counter the claim the fact sheet makes that the 2023 report by the U.S. International Trade Commission said the tariffs stimulated U.S. production and minor impacts on prices. That report, according to TaxFoundation.org, says offers a “glimpse, but not a comprehensive picture, of that story playing out with the Trump tariffs”

Furthermore, “the report itself cautions that it does not offer measures of the complete, economy-wide impacts of the tariffs and cannot be used to draw broad conclusions about whether the tariffs produced a net benefit for the U.S. economy.

The partial picture that emerges, however, is enough to give policymakers pause in using tariffs to protect domestic industry.”

Winners and losers of the tariffs

Another criticism of the tariffs is it unfairely helping some automakers and hurting others.

For example, Japanese and Korean automakers like Toyota, Honda, Nissan, Hyundai and Kia will mostly not be impacted by the tariffs. Those automakers are free to import vehicles without a tariff.

Also, Tesla will largely not be impacted by the tariffs.

A Wall Street analyst summed it up with “Tesla wins, Detroit Bleeds,” wrote Bernstein analyst Daniel Roeska in a Thursday note to clients according to CNBC.com.

Our take

First, it is incredibly frustrating that the fact sheet doesn’t provide actual links to the studies backing up the claims the tariffs do work. Instead, statements like “a 2024 study” do little to bolster their case.

Also, citing the 2023 report is a big mistake since, as you can read for yourself in the executive summary of the report, it is a report and not meant to serve as an analysis on whether tariffs work.

Second, adding American jobs and growing our economy is always a good thing. Losing American businesses hurts communities and families. There’s no argument there.

Third, it remains to be seen if these tariffs have the impact President Trump wants for building more factories. Building a new plant is around $5 billion in cost and takes 4-5 years to get fully operational. 

Then, you have to add in the additional plants for automotive parts. These parts are often shipped back and forth across the border several times inciting a tariff each time.

The reality is the automotive industry will likely just shut down if these tariffs go into effect and consumers will be stuck with limited vehicles on lots with price increases of thousands to tens of thousands more on them. 

There is a right way to encourage growth in U.S. automotive manufacturing and I’m not sure tariffs are it. The automotive industry just can’t flip a switch and make building more automobiles and automotive parts in the U.S. happen overnight..