Auto Makers Hit a Tariff Speedbump

US imports of automobiles and automotive parts will face a 25% tariff beginning April 3, according to a proclamation by the White House on Wednesday, March 26. This new policy escalates a growing trade war between the US and its largest trading partners. Further tariff notices are expected from the White House on April 2, with the announcement of “reciprocal” tariffs aimed to shrink US trade deficits on a country-by-country basis.

Tariffs will be on fully assembled vehicles and parts: The initial automotive tariffs will target fully assembled vehicles. The scope will expand on May 3 to include automobile parts, such as engines, transmissions, powertrain components, and electrical systems.

Mexico and Canada will not be exempt from tariffs: However, there will be some preferential treatment under the US–Mexico–Canada Agreement (USMCA) for “US content” included as parts within the total automobile; 25% tariffs would be placed on non-US content from Canada and Mexico.

The Administration expects to develop a plan to deal with parts that cross the borders of the three countries multiple times. It is typical for US car companies to develop and assemble automotive parts in plants across North America. Some notable models from US automakers finish assembly in Mexico and Canada, including Chevrolet Silverado pickup trucks and the Jeep Compass.

The TCB take: Yes, prices will go up. Automakers and industry analysts say the combination of tariffs and a shift to more domestic US manufacturing will raise automobile prices. One recent analysis expects prices for North American–assembled automobiles to increase by $5,000 to $12,200 each, while vehicles imported from Europe and Asia could see prices climb by $3,000.

Luxury Italian sports car maker Ferrari quickly announced that it would raise prices by 10% on some models in response to US levies. Besides Italy, which ranks eighth as a source of US auto imports, the trading partners outside of North America to be most impacted by tariffs include Japan, South Korea, and Germany. (See chart below.)

Source: Tradeimex and The Conference Board