President Trump on Wednesday prepared to sign an executive order placing a 25% tariff on all cars not made in the U.S. starting April 2, in a measure that the administration claims will encourage more domestic vehicle manufacturing.
"This will continue to spur growth like you haven't seen before," he said.
New policies will also relax what the president characterized as a mandate for the purchase of electric vehicles, which would give consumers more choices between gasoline, electric and hybrid vehicles.
Administration officials say the tariffs could account for $100 billion in new revenue for the U.S. President Trump said some manufacturers will expand existing plants or move parts divisions to the U.S. to avoid tariffs.
A senior administration official said the supply chain troubles of the COVID-19 pandemic highlighted vulnerabilities and choke points for domestic industrial capabilities, which threatened national security.
But new tariffs may make operations more expensive even for U.S.-based auto manufacturing, which depends on international supply chains for vehicles and their parts. A large portion of auto manufacturing touches Canada and Mexico, for example, and accounts for more than half of U.S. auto imports and more than $300 billion in annual trade from the U.S.
Ford, Stellantis and General Motors manufacture vehicles in Mexico. Canada and Mexico combined also buy more than half of the vehicles exported from the U.S.
Vehicles imported to the U.S. through the USMCA trade agreement will be subject to the new tariffs based on the percentage of foreign-made parts they contain, the senior official said Wednesday.
Before the announcement on Wednesday, General Motors shares fell about 3.1%. Stellantis was down 3.5%, while Ford shares climbed a little less than 1%.
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President Trump also plans to enact general "reciprocal" tariffs starting in April, raising import taxes in the U.S. to match any imposed on it by other countries.
President Trump has taxed imports from China by 20%, placed 25% tariffs on many goods from Mexico and Canada, 10% tariffs on Canadian energy products and 25% tariffs on imports of steel and aluminum to the U.S. He plans to add tariffs on lumber, copper and computer chips and has said he will place a 25% tariff on countries that import any oil from Venezuela.
The volatile trade policy has led to a trade war with Canada and Mexico, which both instituted retaliatory tariffs on U.S. products after President Trump enacted the first round of new taxes.
Canada warned Wednesday it would likely respond to the new auto tariffs.
“This is a very direct attack,” Canadian Prime Minister Mark Carney said. “We will defend our workers. We will defend our companies. We will defend our country.”
Trade groups have warned the ongoing tariff exchange is likely to lead to higher prices for consumers.
"Tariffs are just one tool at the administration’s disposal to achieve a secure border, and we urge it to explore other options to accomplish the same goals. As long as these tariffs are in place, Americans will be forced to pay higher prices on household goods," said David French, Executive Vice President of Government Relations at the National Retail Federation. “We urge the Trump administration and our Canadian and Mexican counterparts to work together to quickly resolve our outstanding border security issues.”
