There is no such thing as an all-America car. That's why tariff will raise car prices.
Trump Vows to Protect American Cars Through Tariffs #
President-elect Donald Trump has announced plans to implement steep tariffs on vehicle imports to protect American-made cars, despite the complexity of defining an all-American vehicle. Trump’s economic strategy involves imposing tariffs, which are taxes on imports. On his first day in office, Trump intends to apply a 25% tariff on imported goods from Mexico and Canada.
The intricacies of trade law mean that even parts made in Canada are considered American under current definitions, yet no car surpasses 75% of domestic content. If Trump’s tariff plans proceed, car prices could increase substantially because the auto industry’s supply chain relies heavily on international parts and materials. Current tariffs exempt Mexico and Canada under the US-Mexico-Canada Agreement (USMCA), but this exemption is threatened by Trump’s plans.
Shares of major automakers reacted negatively to these announcements. GM’s shares fell by 9%, Ford’s by 3%, and other major brands also saw declines. The strategy intends to bring jobs back to the US by incentivizing manufacturers to increase domestic production, but this faces challenges due to the supply chain’s complexity.
Only two vehicles, the Tesla Model 3 and the Honda Ridgeline, meet the 75% American-made threshold. However, many parts classified as American are sourced from Canada. Attempts to fully localize parts manufacturing would be challenging and likely more expensive than imports.
Starting new production facilities, such as semiconductor factories crucial for modern cars, can take years, with even existing plants needing significant expansion. Tariffs would elevate the cost of car assembly and be passed on to consumers, who are already spending nearly $50,000 per vehicle.
Trump has suggested tariffs of up to 200% on Mexican-manufactured vehicles might be necessary to protect American auto jobs. Such measures would substantially raise the prices of these cars, including models like the Chevrolet Blazer and Honda HR-V. Production shifts necessary to comply could take years and significantly impact pricing and availability.
Ultimately, higher tariffs on imported cars would limit market supply, potentially leading to increased prices even for locally assembled vehicles. Price inflation of this nature mirrors past market disruptions, potentially reducing competition and allowing US manufacturers to leverage increased prices. The exact impact of these plans remains to be seen, depending heavily on the finalized details of any new tariffs.