Trump slaps 25% tariff on auto imports, risking higher prices and trade war

US President Donald Trump on Wednesday said he was placing 25 per cent tariff on auto imports, a move that the White House claims would foster domestic manufacturing but could also put a financial squeeze on automakers that depend on global supply chains.

"This will continue to spur growth. We'll effectively be charging a 25 per cent tariff," Trump told reporters.

The tariffs could be complicated as even US automakers source their components from around the world, meaning that they could face higher costs and lower sales.

Shares in General Motors have fallen roughly 3 per cent in Wednesday afternoon trading. Ford's stock was up slightly. Shares in Stellantis, the owner of Jeep and Chrysler, have dropped nearly 4 per cent.

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.

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But US and foreign automakers with domestic plants still depend on Canada, Mexico and other nations for parts and finished vehicles, meaning that auto prices could increase and sales could decline as new factories take time to build.

"We are going to be doing automobiles, which you've known about for a long time. We'll be announcing that fairly soon, over the next few days probably," Trump said on Monday.

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 per cent import tax on all imports from China for its role in the production of fentanyl. He similarly placed 25 per cent tariffs on Mexico and Canada, with a lower 10 per cent 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 per cent 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.

Trump's 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 per cent tariff on US spirits, Trump responded by planning a 200 per cent tax on alcoholic beverages from the EU.

Trump also intends to place a 25 per cent 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.

US manufacturing boost

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

Slightly more than one 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.

Another 2.1 million people work at auto and parts dealerships.

The United States last year imported nearly 8 million cars and light trucks worth USD 244 billion. Mexico, Japan and South Korea were the top sources of foreign vehicles.

Imports of auto parts came to more than USD 197 billion, led by Mexico, Canada and China, according to the Commerce Department.