In a surprising campaign speech on March 17th, former President Trump proposed a dramatic economic measure: a “100 percent tariff on every single car that comes across the line.” This statement, while generating headlines, left many wondering about the specifics and potential ramifications. When we talk about cars, understanding the “make” of a vehicle is fundamental – is it Ford, Toyota, BMW? But what happens when the concept of “make” becomes entangled with international trade policy and hefty tariffs? Let’s delve into what a 100 percent tax on imported autos could truly mean for the automotive industry and, more importantly, for you, the consumer.
Conflicting Tariff Scenarios
The implications of such a tariff are far-reaching and potentially devastating. Economic history teaches us that tariffs, essentially taxes on imports, tend to inflate prices. Just as seen with tariffs on other goods in the past, a 100 percent tariff on imported vehicles would likely trigger a significant surge in the cost of cars across the board – not just imports, but domestic and used vehicles as well. Contrary to the promise of job creation often associated with tariffs, economic analyses suggest that such measures could backfire, potentially leading to job losses in the thousands within the US economy.
Adding to the complexity, Trump’s tariff proposals have been somewhat inconsistent. In his March 17th address, he seemed to target Chinese-branded cars manufactured in Mexico. While BYD, a leading Chinese electric vehicle manufacturer, is considering establishing production in Mexico, they currently do not sell any vehicles in the US market. Furthermore, across various pronouncements, Trump has floated different tariff figures, including a 10 percent tariff on all imports, a 50 percent tariff specifically on Chinese automobiles, and a 60 percent tariff on all goods originating from China. The ambiguity extends to whether these tariffs would apply solely to complete vehicles or also encompass crucial component parts. The precedent set by the 2018 tariffs on Chinese steel, which did include materials used in manufacturing, suggests that auto parts could also be targeted under new levies.
The Intricate Global Supply Chain
To grasp the full impact of auto tariffs, it’s crucial to acknowledge the globally interconnected nature of the modern automotive industry. The vehicles assembled by American workers within the US are not solely composed of domestic parts. They rely on a complex, international supply chain, sourcing components from various nations, particularly Mexico and Canada, but also including China and numerous other countries.
Approximately a quarter of all cars and light trucks purchased in the United States are directly imported. Moreover, over half of the vehicles sold in the US market bear foreign brand names such as Toyota, BMW, or Hyundai. However, a significant 44 percent of these foreign brand vehicles are actually assembled within the US, utilizing a blend of both foreign and domestically produced parts. Interestingly, brands not headquartered in the US often utilize a higher percentage of American-made components compared to some US-based automakers. For instance, in 2023, Honda vehicles boasted an average domestic content of around 67 percent, while Ford vehicles, on average, contained approximately 52 percent US-made components, according to the American University’s Made in America Auto Index.
Simultaneously, the United States is also an exporter in the automotive sector, shipping roughly 77,000 cars and $70 billion worth of parts to global markets. Surprisingly, some of the largest importers of US auto parts include Mexico, Canada, and China. This two-way trade flow highlights that many vehicles imported into the US already contain American-made components, further complicating the tariff equation.
Inflationary Pressures and Job Security
The immediate economic consequence of a 100 percent tariff on imported vehicles would be a near doubling of their price, as the majority of the tariff burden is typically passed on to consumers. However, the ripple effects would extend beyond just imported cars. Domestic car manufacturers would likely seize the opportunity to increase their prices as well, even before factoring in the increased costs they would incur due to tariffs on imported parts needed for their own production.
Furthermore, the jobs of the approximately one million American workers engaged in vehicle and parts manufacturing, and the 1.2 million individuals employed by auto dealerships, would face increased uncertainty. The threat of retaliatory tariffs from US trading partners is almost certain. Historically, such trade disputes have escalated into trade wars, leading to even higher prices for American consumers and widespread job losses across various sectors.
While the precise employment impact of Trump’s vaguely defined proposals remains uncertain, the more modest 25 percent tariffs imposed on imported steel in 2018 serve as a cautionary example. Estimates suggest those tariffs resulted in as many as 175,000 US job losses and reduced net US income by over $7 billion, according to some analyses.
Economic Instability and the Road Ahead
Could American companies respond to these tariffs by establishing new domestic factories to produce components and assemble vehicles within the US, as proponents like Trump might hope? While theoretically possible, such shifts would require substantial time – years, not months – to materialize. Moreover, the anticipated surge in car prices resulting from tariffs could trigger a significant drop in auto sales, making companies hesitant to invest in new manufacturing capacity. The overarching economic uncertainty generated by such drastic tariff policies could stifle investment across numerous industries, extending far beyond the automotive sector.
While the specific trade policies a future Trump administration might implement remain unclear, one conclusion is undeniable: a 100 percent tariff on imported automobiles would likely precipitate a significant economic disruption for American consumers and a substantial number of workers across the automotive industry and related sectors. Understanding “make” in the context of cars today means recognizing a globalized industry where tariffs can have complex and often negative consequences, impacting not just the price of your next car, but the broader economic landscape.
