Trump’s Tariff Turbulence: Automakers Prepare for Massive Economic Shockwaves

Your Next Car Purchase: Tariffs Ahead, Higher Prices Ensue

The COVID-19 pandemic has disrupted global supply chains, but the current administration’s policies will likely make a bigger impact on your wallet. President Donald Trump’s decision to impose 25% tariffs on imported vehicles from Canada and Mexico will lead to higher prices for American consumers.

A Massive Tariff Upon Your Vehicle Purchase

Around 5.3 million vehicles are built in Canada and Mexico, with 70% destined for the United States. These vehicles will soon be subject to 25% tariffs, which will be passed down to consumers as cost increases. As a result, you can expect:

• Fewer incentives and special deals at dealerships as dealers get stingier about their vehicle inventories
• Higher prices for a wide range of consumer goods, from clothes and shoes to food and cars
• More incentives to consider purchasing used cars, which could see price increases

Companies Bear the Cost, and You Pay the Price

Mike Wall, executive director for automotive analysis at S&P Global, believes you won’t see higher MSRPs immediately, but manufacturers will eventually pass the cost along to you. "A 25% tariff is just massive in this industry," Wall emphasized.

The Trump Administration’s Goal: Tax Revenue and Protection

Tariffs are a tax on goods imported from another country. The Trump administration claims the new tariffs on Canada, Mexico, and China are to stop the flow of illegal drugs into the US. However, presidents often use tariffs as a threat during trade negotiations or to protect domestic industries from cheaper foreign products.

Industry Leaders Weigh in

Philip Daniele, CEO of AutoZone, has said, "If we get tariffs, we will pass those tariff costs back to the consumer." Virtually every car company will be impacted, including Ford, Mazda, General Motors, Stellantis, and Toyota.

Consequences for the Industry and Consumers

S&P Global Mobility estimates that a 25% tariff on a $25,000 vehicle would be $6,450, with most of that cost borne by the consumer. As prices rise, consumers will exit the market, opting for used vehicles instead. This scenario could lead to a potential supply and demand crisis for new vehicles.

Elections and the EV Effect

The price of certain components, such as batteries, could increase due to tariffs, affecting the already competitive electric vehicle market. Rivian CEO RJ Scaringe warned that the tariffs pose a bigger threat to the EV industry than the potential elimination of tax incentives under Trump.

Automakers’ Contingency Plans

While most automakers claim they have contingency plans for tariffs, they remain tight-lipped about the specifics. Spokespersons for Ford and BMW declined to comment, while Volkswagen emphasized its commitment to free and fair trade.

Conclusion

In this article, we’ve examined the impact of the Trump administration’s tariffs on the auto industry, from Canada and Mexico to the American consumer. With higher prices on the horizon, consumers may need to adjust their buying habits. Will you be impacted by the tariffs?