- A proposed 25% auto tariff could reshape global trade, impacting supply chains and costs.
- The policy intends to encourage the production of these goods within US borders.
- Further details on tariffs will be announced on April 2, outlining affected products and nations.
In another move that some auto CEOs, like Ford’s Jim Farley, might describe as chaotic, President Donald Trump has proposed setting a 25% tariff on goods, including imported cars, set to take effect on April 2. While he didn’t specify which countries would be affected, he broadened the potential scope to include semiconductor chips and pharmaceuticals—both of which, he hinted, could face even steeper tariffs than automobiles.
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Trump says further details will be announced on April 2, suggesting that the gap between now and then is an opportunity for companies to shift production to US soil. “When they come into the United States and they have their plant or factory here, there is no tariff. So we want to give them a little bit of a chance,” he said.
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Over the past few weeks, the US President has repeatedly threatened other nations with new tariffs. He already imposed a 10 percent tariff on Chinese-made goods. China retaliated with a 10 percent tariff on American-made cars. He also threatened Canada and China with 50-100 percent tariffs on cars. Perhaps in that light, 25 percent doesn’t seem so bad.
His impetus he says is due to the unfair nature of deals between the US and its trading partners. For example, the EU collects a 10 percent tariff on all vehicle imports. The U.S. collects just 2.5 percent on passenger cars. The famous ‘chicken tax’ goes the other direction though and puts a 25 percent tariff on all pickup trucks from nations outside of the USA. Trump recently threatened the EU with a similar 10 percent tariff to match its own.
To be clear, the Trump administration didn’t clarify which country or countries will be facing this new 25 percent tariff. It’s plausible that he could impose it on the EU, Canada, and Mexico or be more selective than that. This isn’t where the story ends though because Trump also mentioned new chip tariffs.
Only a few years ago, an international chip shortage caused all sorts of chaos in the automotive industry. Cars would sit for weeks or longer in an almost deliverable state while just waiting on a few tiny components including chips. If semiconductor tariffs disrupt supply chains again, automakers could find themselves in a familiar predicament, and this time, with a self-inflicted twist.
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