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President Donald Trump today announced a 25% tariff on all cars built outside the U.S. and many parts used in cars built here. The move will raise the price of many cars, including models sold by American automakers but built elsewhere.
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The President later issued a proclamation explaining the move.
“Asked if the car tariffs could be removed, Trump says they are permanent,” The New York Times reports.
Tariffs on finished cars take effect on April 3 but may take longer to affect car prices and roll gradually across the automotive market. Tariffs on parts could take as much as a month longer, as government regulators need time to create rules enforcing them.
Industry publication Automotive News says the move “could cause massive ripple effects throughout global automotive supply chains already reeling from other new levies, retaliatory measures, and a lack of long-term clarity on trade policy.”
The New York Times reports, “Shares of major carmakers fell even further in postmarket trading after President Trump’s announcement of tariffs on imported cars. Ford, which had ended the day modestly higher, fell more than 2%. General Motors tumbled an additional 5%, while Toyota fell almost 2%.”
A tariff is a tax on imports. The company importing a product pays the tariff. However, most pass it on to consumers in the form of higher prices. A 25% tariff is high enough that automakers will likely not be able to absorb its cost. They must respond by raising prices or by not importing some cars to the U.S.
If you’re car shopping, the tariffs will change what you see at dealerships. But the prices on window stickers may not increase right away.
The cars already on dealer lots were imported at pre-tariff prices. Some dealers may try to negotiate higher prices for those, but shoppers should negotiate knowing that automakers did not pay higher prices to import those cars.
Each automaker has a stockpile of cars already in the country at pre-tariff prices. Post-tariff prices will begin to affect each automaker only after that supply runs out, and they start selling cars imported after April 2.
Some automakers have relatively short supplies. Toyota ended February with a 38-day supply of new cars in the U.S. Honda had 57.
