Trump places 25% tariff on imported autos. Carmakers could face higher costs and lower sales

The Republican president reiterated his willingness to challenge allies by saying Thursday on social media that if the European Union coordinated with Canada, tariffs “far larger than currently planned” would be placed on them in retaliation.

Shares in General Motors tumbled roughly 7% in Thursday trading. Ford's stock fell about 4%. Shares in Stellantis, the owner of Jeep and Chrysler, dropped 1.25%. But the stock prices of electric vehicle makers Tesla and Rivian were up.

The American Automotive Policy Council, which represents domestic automakers, said in a statement that “it is critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector,” which depends on the U.S.-Mexico-Canada trade deal negotiated during Trump's first term.

The group's president, former Republican Gov. Matt Blunt of Missouri, said in an email response to questions from The Associated Press that “we have clearly expressed concerns related to prices and other impacts to the administration as well as our belief that a modernized” North American trade agreement should remain in place."

Trump has long said that tariffs against auto imports would be a defining policy of his presidency, betting that the costs created by the taxes would cause more production to relocate to the United States while helping narrow the budget deficit. But U.S. and foreign automakers have plants around the world to accommodate global sales while maintaining competitive prices — and it could take years for companies to design, build and open the new factories that Trump is promising.

"We’re looking at much higher vehicle prices,” said economist Mary Lovely, senior fellow at the Peterson Institute for International Economics. “We’re going to see reduced choice. ... These kinds of taxes fall more heavily on the middle and working class.’’

She said more households will be priced out of the new car market — where prices already average about $49,000 — and will have to hang on to aging vehicles.

The tariffs on autos would start being collected on April 3, Trump said. If the taxes are fully passed onto consumers, the average auto price on an imported vehicle could jump by $12,500, a sum that could feed into overall inflation. Trump was voted back into the White House last year because voters believed he could bring down prices.

Foreign leaders were quick to criticize the tariffs, a sign that Trump could be intensifying a broader trade war that could damage growth worldwide.

“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.”

In Brussels, European Commission President Ursula von der Leyen expressed regret at the U.S. decision to target auto exports from Europe and vowed that the bloc would protect consumers and businesses.

“Tariffs are taxes — bad for businesses, worse for consumers equally in the U.S. and the European Union,” she said in a statement, adding that the EU’s executive branch would assess the impact of the move, as well as other U.S. tariffs planned for coming days.

Mexican President Claudia Sheinbaum said Thursday that her country did not want to be drawn into taking positions with each new tariff, but that under the trade pact from Trump's first term that “there shouldn’t be any tariffs, that is the essence of the commercial treaty.”

As Trump announced the new tariffs, he indicated that he would like to provide a new incentive to help car buyers by allowing them to deduct from their federal income taxes the interest paid on auto loans, so long as their vehicles were made in America. That deduction would eat into some of the revenues that could be generated by the tariffs.

The new tariffs would apply over time to both finished autos and parts used in the vehicles, according to a White House official who spoke on condition of anonymity to discuss the taxes on a call with reporters. The tariffs would be on top of any existing taxes and were legally based on a 2019 Commerce Department investigation that occurred during Trump's first term on national security grounds.

Trump’s directive creates the space to preserve auto parts trade with Canada and Mexico, as the Trump administration has to figure out how it could implement auto parts taxes on those trading partners. The administration's goal is for the 25% tariffs to only apply to non-U.S. content.

The administration is reasoning that there is excess capacity at U.S. automakers that will enable them to ramp up production to avoid the tariffs by manufacturing more domestically, with the official noting that automakers have known since the Trump campaign that tariffs were coming.

The auto tariffs are part of a broader reshaping of global relations by Trump, who plans to impose what he calls “reciprocal” taxes on April 2 that would match the tariffs, sales taxes charged by other nations.

Trump has already placed a 20% import tax on all imports from China for its role in the production of fentanyl. He similarly placed 25% tariffs on Mexico and Canada, with a lower 10% tax on Canadian energy products. Parts of the Mexico and Canada tariffs have been suspended, including the taxes on autos, after automakers objected and Trump responded by giving them a 30-day reprieve that is set to expire in April.

The president has also imposed 25% tariffs on all steel and aluminum imports, removing the exemptions from his earlier 2018 taxes on the metals. He also plans tariffs on computer chips, pharmaceutical drugs, lumber and copper.

His taxes risk igniting a broader global trade war with escalating retaliations that could crush global trade, potentially hurting economic growth while raising prices for families and businesses as some of the costs of the taxes get passed along by importers. When the European Union retaliated with plans for a 50% tariff on U.S. spirits, Trump responded by planning a 200% tax on alcoholic beverages from the EU.

Trump also intends to place a 25% tariff on countries that import oil from Venezuela, even though the United States also imports oil from that nation.

Trump's aides maintain that the tariffs on Canada and Mexico are about stopping illegal immigration and drug smuggling. But the administration also wants to use the tariff revenues to lower the budget deficit and assert America's preeminence as the world's largest economy.

The president on Monday cited plans by South Korean automaker Hyundai to build a $5.8 billion steel plant in Louisiana as evidence that tariffs would bring back manufacturing jobs.

Slightly more than 1 million people are employed domestically in the manufacturing of motor vehicles and parts, about 320,000 fewer than in 2000, according to the Bureau of Labor Statistics. An additional 2.1 million people work at auto and parts dealerships.

The United States last year imported nearly 8 million cars and light trucks worth $244 billion. Mexico, Japan and South Korea were the top sources of foreign vehicles. Imports of auto parts came to more than $197 billion, led by Mexico, Canada and China, according to the Commerce Department.

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Associated Press writer Rob Gillies in Toronto and AP Economics Writer Paul Wiseman contributed to this report.