The 25% tax of President Donald Trump on imported cars, light trucks and automotive parts is likely to raise prices at a time when many Americans are already struggling to afford a new set of wheels. The prices will also force car manufacturers to rethink the cars they make and where they make them.
Trump is looking forward to taxing foreign cars for years. During his first mandate, he declared that automobile imports threaten national security, which gave him the power to impose prices for them. On Wednesday, he went forward and imposed the samples. They come into force at midnight on April 3.
This is the last in a number of maneuvers from the Trump automotive industry during his first weeks at the White House. Automobile companies are also sailingThe reversal of fuel economy standardscompoundGreenhouse gas emission standardsand aHost of electric vehicle policy policy.
Certain details of Trump’s automotive rates have not yet been developed.
For example, it is not clear if the new car rates would accumulate in more than 25% of the import taxes which will be deducted next week from all the goods in Canada and Mexico. This would mean that Canada and Mexico cars could potentially cope with new prices of 50%.
And for the moment, the Trump administration is free from pricing cars, light trucks and automotive parts that are eligible for a franchise treatment of rights under the American-Mexican-Canada agreement, a regional commercial pact that the president negotiated five years ago. Trump intends to restrict this exemption to content made in the United States, not in Canada or Mexico. But this will require the implementation of processes to determine what is qualified as American manufacturing – something that could take weeks or months.
The White House also said that the import tax would apply to “key” automotive parts, including motors, transmissions, parts of the powertrain and electrical components. And it could extend the prices to other automotive parts “if necessary”.
Here’s what you need to know:
Why are the prices so difficult for the automotive industry?
As car manufacturers have developed on a global scale, they have created complicated and effective supply chains that extended over the countries. In North America, for example, Mexico provides low salary workforce and manufactures cheaper and cheaper cars and trucks while Canada and the United States offer more skilled know-how and technological know-how.
Trump’s prices aim to bring automotive manufacturing to the United States. But it will not be easy.
Researching the supply of thousands of documents imported into the United States and deracizing assembly operations would take years.
“This adds to the uncertainty faced by all car manufacturers because the industry supply chain is intrinsically global and has optimized the components moved through the national borders where free trade agreements have existed in the past,” said John Paul MacDuffie, professor of management at the University of Pennsylvania.
Sam Fiorani, analyst at Autoforecast Solutions, notes that if European manufacturers of luxury vehicles and their buyers can afford price adjustments, “it is companies like Toyota, Mazda and Subaru who import large percentages of their fleets that will take a hit.”
“Throwing prices on the parts of the vehicles built in Mexico and Canada which are not from the United States harm the benefits of General Motors, Stellantis and Ford in the coming quarters, which costs them billions,” he added.
Trump’s prices – which he insists on a permanent level – will force businesses to make difficult choices.
“This will have the effect of forcing companies to increase American content ” if they want to dodge import taxes,” said Richard Mojica, a lawyer with Miller & Chevalier.
And even if Vanessa Miller, president of the automotive team of law firm Foley & Lardner, recognizes that some companies will be able to rotate operations in the United States, others are too linked to factories in Mexico or elsewhere to move.
Car manufacturers may have to stop making vehicles because they will not be profitable with the prices in place. The prices have struck “everyone in a way that reths them everything,” said Ivan Drury of the Edmunds automobile website. “It’s about three or four years. We don’t look at something you can just go out. ”
What does this mean for car buyers and new cars prices?
Beata Caranci and Andrew Foran of TD Economics believe that prices could increase the average price of cars and light trucks in the United States – which totaled more than $ 47,000 last month – up to $ 5,000 if car manufacturers transmit the total cost for consumers. This price increase could increase – up to $ 10,000 – if the Trump administration applies full tax to cars made in Mexico and Canada.
Car manufacturers and their suppliers are only recovering nowyears of instabilitycaused by forced production stops in pandemic, ashortage of semiconductors sweepingand a low inventory on dealership grounds. It meantThe prices were high, the incentives were low and few transactions had to be concluded.
During the Pandemic peak, consumers have always bought vehicles at high prices. But the stacked prices could put new vehicles out of reach for many potential buyers, in particular given the growing indications of potentiallyWider inflation to come throughout the economy.
“From almost immediately, consumers will see their new vehicles already dear cost hundreds to thousands of others and these prices will increase even more when the supplies of many key vehicles decrease,” said Fiorani. “Imagine that prices increase during the shortage of semiconductors and stretch it on each brand and manufacturer. The delayed effect will put smaller suppliers to bankruptcy and send many unemployed workers.”
What about used cars?
By increasing the prices of new vehicles, the prices will probably send buyers on the used market. But with an inventory used limited, an influx of buyers could also switch the prices of used cars. And they on average $ 25,000 on average.
The penetration of the lease, or the number of vehicle transactions which are leases, have an average of around 30% in the last 10 years, according to data from Edmunds.
But the industry has experienced low rental rates – almost half of the standard – in particular between May 2022 and January 2023. Fewer rented vehicles generally means fewer vehicles of two or three years on the used cars market.
There will therefore probably be a shortage of used cars, just as more buyers are starting to buy them.
How did industry react?
Governor Matt Blunt, president of the American Automotive Policy Council, who represents American car manufacturers, said that manufacturers had supported Trump’s efforts to stimulate national automobile manufacturing. But he warned that “it is essential that prices are implemented in a way that avoids increasing consumer prices and which preserves the competitiveness of the integrated North American automotive sector.
The Union of Labor of UNITED workers applauded prices. “The end of the race down in the automotive industry begins with the resolution of our broken trade transactions, and the Trump administration has marked history with today’s actions,” said UAW president Shawn Fain, in a statement. “These prices are a major step in the right direction for car workers and blue-collar communities across the country, and it is now on car manufacturers, from three large to Volkswagen and beyond, to bring good union jobs to the United States”
But Jennifer Safavian, president and chief executive officer of Autos Drive America, who represents international car manufacturers, denounced the prices: “The prices imposed today will make more expensive to produce and sell cars in the United States, which ultimately leads to higher prices, fewer options for consumers and less manufacturing jobs in the United States”
This story was initially presented on Fortune.com
