Trump Fuels Trade War Concerns with Fresh Auto Tariffs

Asian automotive stocks experienced a decline following US President Donald Trump’s announcement of a 25% tariff on imported vehicles, escalating a global trade war and eliciting criticism and retaliation threats from affected US allies.

The new tariffs on cars and light trucks will come into effect on April 3, just a day after Mr. Trump is set to unveil reciprocal tariffs targeting countries contributing to the majority of the US trade deficit.

This announcement adds to existing duties on steel and aluminum, as well as goods imported from Mexico, Canada, and China.

In 2024, the US imported $474 billion (€440 billion) worth of automotive products, including $220 billion in passenger cars. Mexico, Japan, South Korea, Canada, and Germany—key US allies—ranked as the largest suppliers.

Canadian Prime Minister Mark Carney referred to the tariffs as a ‘direct attack’ on Canadian workers.

“We will defend our workers, we will defend our companies, we will defend our country, and we will do it together,” Mr. Carney told reporters in Ottawa.

Stock declines were led by automakers like Toyota Motor and Mazda Motor in Japan, which depends on automotive exports for over a quarter of its total exports to the US. Shares of Hyundai Motor and Kia Corp in South Korea also saw significant drops.

Japanese Prime Minister Shigeru Ishiba announced that Japan would consider “all options” in response to the new tariffs.

Brazil’s President Luiz Inacio Lula da Silva warned that Mr. Trump’s additional tariffs could harm the US economy.

“It will increase the prices of goods and might lead to inflation that he hasn’t yet foresaw,” Mr. Lula stated at a press conference in Japan. “Protectionism does not benefit any country globally,” he added, pledging to file a complaint with the World Trade Organization regarding a tariff on Brazilian steel.

Mr. Trump perceives tariffs as a mechanism to generate revenue to compensate for his promised tax cuts and to rejuvenate the declining US industrial sector.

Read more: Trump to impose 25% tariff on all vehicles not made in the US

Many trade specialists, however, predict initial price hikes and decreased demand, further straining an auto industry already troubled by uncertainty from Mr. Trump’s swift tariff threats and occasional reversals.

“We’re going to charge countries for doing business in our country and taking our jobs, taking our wealth, and taking many of the things they’ve taken over the years,” Mr. Trump commented from the Oval Office.

“They’ve extracted so much from our country, both friends and foes alike, and frankly, our friends have often been worse than our foes.”

Praise from the UAW

The United Auto Workers, longstanding critics of free trade agreements which they claim have eroded American jobs, welcomed this new move.

Per the Centre for Automotive Research, the newly imposed vehicle levies are anticipated to impact new car sales.

“These tariffs are a significant step in the right direction for autoworkers and blue-collar communities nationwide, and now it is up to the automakers—ranging from the Big Three to Volkswagen and beyond—to reinstate quality union jobs in the US,” UAW President Shawn Fain said in a statement.

Shares of US automakers, which are deeply integrated with factories and suppliers in Canada and Mexico, fell during after-hours trading, while US equity index futures dropped, suggesting stocks would open lower.

Brad Setser, formerly with the US Treasury and now part of the Council on Foreign Relations, mentioned that around four million cars from Canada and Mexico would face tariffs of 25% or more, likely raising prices and dampening US car sales for “a while.”

The Centre for Automotive Research indicated that the new levies might result in car buyers facing thousands of dollars in additional costs, impacting new vehicle sales and leading to job losses, as the US automotive industry relies heavily on imported components.

“The tariffs enacted today will elevate the costs of producing and selling cars in the United States, ultimately resulting in higher prices, fewer consumer choices, and a decrease in manufacturing jobs in the US,” stated Jennifer Safavian, president and CEO of Autos Drive America, a trade group representing foreign automakers.

Mr. Trump’s directive included temporary exemptions for auto parts while government officials work through the complexities of implementing his proclamation.

Since taking office on January 20, Mr. Trump has both announced and delayed tariffs on Canada and Mexico over their alleged roles in permitting the import of the opioid fentanyl; imposed import taxes on goods from China for similar reasons; initiated significant duties on steel and aluminum imports; and has consistently touted intentions to announce global reciprocal tariffs on April 2.

Mr. Trump noted that auto tariffs could be neutral for Tesla, the electric vehicle manufacturer led by Elon Musk, who is also leading a government cost-cutting initiative.

Mr. Musk later tweeted that Tesla would not emerge unscathed. “The tariff impact on Tesla is still significant,” he remarked.

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