Trump presses ahead with car tariffs, ratcheting up trade war

WASHINGTON: US President Donald Trump on Wednesday (Mar 26) announced plans for long-promised tariffs of up to 25 per cent on automotive imports, widening the global trade war he kicked off upon regaining the White House this year.

Automotive industry experts expect the move will drive up prices and stymie production.

"What we're going to be doing is a 25 per cent tariff for all cars that are not made in the United States," Trump said at an event in the Oval Office.

"We start off with a 2.5 per cent base, which is what we're at, and go to 25 per cent."

Trump, who sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining US industrial base, said the new import taxes will go into effect on Apr 2, the same date he plans to announce reciprocal tariffs aimed at the countries responsible for the bulk of the US trade deficit.

Collection of the new auto tariffs would begin on Apr 3. Besides cars, it will also impact light trucks.

Details of the proclamation Trump signed were still emerging, but their legal basis was a 2019 national security investigation into auto imports that Trump's first administration conducted, according to a photo of his signed proclamation seen by Reuters.

The proclamation invokes Section 232 of the Trade Act of 1962. The 2019 investigation found that auto imports impair US national security, but at the time, Trump did not take action to impose tariffs.

The directive also exempts automotive parts that are compliant with the US-Mexico-Canada Agreement on trade that Trump negotiated during his first term.

The agreement allows for largely duty-free trade between the US and its two largest trading partners.

"USMCA-compliant automobile parts will remain tariff-free until the Secretary of Commerce, in consultation with US Customs and Border Protection (CBP), establishes a process to apply tariffs to their non-US content," White House principal deputy press secretary Harrison Fields said on X.

The US imported US$474 billion worth of automotive products in 2024, including passenger cars worth US$220 billion.

Mexico, Japan, South Korea, Canada and Germany, all close US allies, were the biggest suppliers.

Trump will grant up to a one-month reprieve for auto parts imports from his new automotive tariffs, according to his signed proclamation.

STOCKS FALL

Ahead of Trump's announcement, shares of US-listed automakers fell on concerns that tariffs would send shock waves through a global auto industry that is already reeling from uncertainty caused by Trump's rapid-fire tariff threats and occasional reversals.

The US stock market also closed lower on worries over tariffs, which have dogged investors for much of the last month.

The benchmark S&P 500 Index fell 1.1 per cent ahead of the press conference, and is down more than 4 per cent so far in March for its worst monthly performance in nearly a year.

Equity index futures for the S&P 500 were another 0.4 per cent lower on Wednesday evening after the announcement, signalling a weaker start to trading on Thursday.

Since taking office on Jan 20, Trump has announced and delayed tariffs on Canada and Mexico for what he alleges is their role in allowing the opioid fentanyl into the US. He set import taxes on goods from China for the same reason.

The US president also launched hefty duties on imports of steel and aluminium and has repeatedly touted his plans to announce global reciprocal tariffs on Apr 2.

Regarding the coming Apr 2 announcement, Trump indicated the measures may not be the like-for-like levies he has been pledging to impose.

"We're going to make it very lenient," Trump said. "I think people will be very surprised. It'll be, in many cases, less than the tariff they've been charging for decades."

The new vehicle levies were expected to drive costs of cars higher for consumers by thousands of dollars, hitting new vehicle sales and resulting in job losses, since the US automotive industry relies heavily on imported parts, according to the Center for Automotive Research.

“At a time when cost is the number one concern for American car buyers, US automakers are working to provide a range of affordable vehicles for consumers," Jennifer Safavian, president and CEO of Autos Drive America, a trade group representing foreign automakers, said in a statement.

"The tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers, and fewer manufacturing jobs in the US"
 

The announcement drew swift condemnation from the European Union and from Canadian Prime Minister Mark Carney, who called it a "direct attack" on Canadian workers.

"We will defend our workers, we will defend our companies, we will defend our country, and we will defend it together," Carney said. 

EU chief Ursula von der Leyen on Wednesday condemned the tariffs.

"I deeply regret the US decision to impose tariffs on European automotive exports," von der Leyen said in a statement, adding the European Union would "continue to seek negotiated solutions, while safeguarding its economic interests".

Vivek Vaidya, partner at business consultancy Frost & Sullivan, said major car manufacturing countries have to figure out how to work with the US, as their domestic markets are small. 

"The US is like their lifeline for generating profits," he told CNA's Asia First. "In the long term, they can't really simply ignore the US as a market and carry on business as usual."

Vivek said Asian automakers, which count the US among their biggest markets, are monitoring the situation "with a very, very tense mindset". 

"They have absolutely no way to cope with this tariff without causing any disruption. There is no margin... that can absorb this, so they'd have to pass it on to the customers. Ultimately, it is the American consumers who might suffer," he added.

He noted that automotive facilities take years, even decades, to set up, hence companies will not be able to shift production elsewhere cheaper in the immediate term.

"These are supply chains which are laid out over a long period of time. As a result, you are going to see some kind of production disruptions. This is obviously going to result in supply delays, lack of demand, or increased prices in cars. It's a bolt from the blue that nobody wants," he said.