U.S. President Trump Levies 25% Tariff on Imported Vehicles: Automotive Industry Confronts Rising Costs and Layoff Threats

On April 3, 2025, President Trump of the United States imposed a 25% tariff on all imported cars, resulting in an additional cost burden of $108 billion on the U.S. automotive industry. Car prices are expected to increase by $2,000 to $6,000, with some models experiencing increases of up to 15%. Automakers have started layoffs, salary freezes, and adjustments to production strategies. This policy has a particularly severe impact on automotive hubs such as Michigan and disrupts the functioning of the North American Free Trade Agreement.

Overview of Tariff Policy

According to a White House announcement, the Trump administration announced on March 26, 2025, a 25% tariff on all imported cars, which took effect on April 3, 2025. This move covers imported vehicles and components from Europe, Asia, and North America. Although some products that comply with the United States-Mexico-Canada Agreement (USMCA) standards may receive temporary exemptions, most vehicles and parts are still affected. The White House expects this move to generate $100 billion in annual tax revenue for the federal government.

Cost Pressure and Industry Impact

The Michigan-based nonprofit Center for Automotive Research (CAR) pointed out that the 25% tariff will result in approximately $108 billion in additional costs for the U.S. automotive industry in 2025. The cost increase for Ford, General Motors (GM), and Stellantis is estimated to reach $41.9 billion.

CAR further estimates that the average cost of each imported car will increase by $8,722 due to the tariff, and even vehicles assembled in the U.S. using imported parts will face an average additional cost of $4,239. For automakers relying on global supply chains, these costs are almost unavoidable.

Goldman Sachs analyst Mark Delaney pointed out that the automotive industry finds it difficult to pass all costs onto consumers, especially in a weak market environment. He predicts that within the next 6 to 12 months, the price of new cars in the U.S. will increase by $2,000 to $4,000.

Cox Automotive estimates that the price of imported cars will rise by about $6,000, while U.S.-assembled vehicles using imported parts may increase by $3,600. Additionally, tariffs on steel and aluminum will further increase the cost of each car by $300 to $500.

Price Increases and Consumer Impact

According to Cox Automotive's analysis, all vehicles—whether produced in the U.S. or not—will be affected by price increases. The agency noted that in 2024, over 40% of new car sales prices were below $40,000, and about 80% of these models will be directly impacted by the 25% tariff.

Cox predicts that overall car prices will rise by 10% to 15%, and even models not fully affected by the tariff may increase by at least 5% due to market chain reactions. This will further limit car purchase options for middle- and low-income families.

Manufacturers' Response: Layoffs and Salary Cuts

Facing cost pressures and demand uncertainty, automakers have begun to take countermeasures. General Motors (GM) has announced temporary layoffs of 200 employees at the plant producing the electric GMC Hummer. Goldman Sachs analysis indicates that companies may further control expenses through large-scale layoffs, salary freezes, and cuts in R&D budgets.

According to the Daily Mail, high-income professionals, such as engineers and sales personnel, in the automotive industry may also become targets for layoffs. Boston Consulting Group's global automotive business leader Felix Stellmaszek stated that this tariff will force the industry to undergo structural transformation, affecting not only costs but also production locations and supply chain restructuring.

Automotive Brands and Supply Chain Adjustments

Facing tariff pressures, some automakers have begun adjusting their strategies. Swedish car brand Volvo stated it will accelerate the relocation of some production lines to the U.S., but it is expected to take two years. Other brands like Volkswagen and Porsche are considering passing the tariff costs onto consumers or adjusting product pricing.

KPMG's U.S. automotive sector leader Lenny LaRocca pointed out that automakers are trying to mitigate short-term impacts by reducing models, delaying production, freezing shipments, and offering employee discounts.

Regional Impact and Supply Chain Risks

Michigan, as a major hub of the U.S. automotive industry, is particularly affected. The supply chain and job market in the Detroit area are facing significant uncertainty. Detroit Regional Chamber Vice President Glenn Stevens stated that although the Trump administration has temporarily suspended tariffs on other industries, the 25% tariff on cars and parts remains in effect, causing ongoing pressure on the local industry.

Additionally, due to the highly integrated automotive supply chain between the U.S., Canada, and Mexico, the tariff policy also disrupts the operation of the North American Free Trade Area. Ford CEO Jim Farley has warned that imposing tariffs on Mexico and Canada will deal an "unprecedented blow" to the U.S. automotive industry.

References

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