After two months of flip-flopping on tariffs, imposing them one day and often suspending them the next, Donald Trump gunned the accelerator of his trade war on Wednesday by announcing a 25% tariff on autos and auto parts imported into the United States. That’s a very big deal, and while the president insists this hefty import tax on cars is going to be good for “anybody who has plants in the United States”, his move – like a car in desperate need of a tune-up – could easily backfire.
Nearly half of the cars sold in the US are imported, and Trump’s 25% tariff will add at least $6,000 to the sticker price of the average car, industry experts say. Domestic auto producers will be able to jack up their sticker prices because the new tariffs will make US automakers face considerably less price competition from imported cars. This expected sticker shock could anger America’s inflation-weary consumers and voters, especially since candidate Trump had pledged to battle to bring down prices. These higher car prices could cause a quick drop in auto sales in the US, and that could translate into a downturn in auto production, too.
Trump’s big hope, as well as the United Auto Workers’ big hope, is that the tariffs will encourage automakers – especially GM, Ford and Stellantis (the successor company to Chrysler) – to bring lots of their car production back into the US long term. Shawn Fain, the UAW’s president applauded Trump “for stepping up to end the free trade disaster that has devastated working-class communities for decades”. Fain, an outspoken supporter of Kamala Harris, added: “Ending the race to the bottom in the auto industry starts with fixing our broken trade deals, and the Trump administration has made history with today’s actions.”
The UAW has been one of the leading critics of the three-decade-old North American Free Trade Agreement (Nafta). That union warned that the agreement would do grievous damage to US manufacturing by giving Mexico, a country with far lower wages, free access to the US market. The UAW cautioned that Nafta would be a boon for profit-hungry US corporations, but a bane for US factory workers. The UAW proved correct about that. The Economic Policy Institute, a progressive research group, estimates that the US lost 682,000 jobs because of Nafta. (Stellantis makes several models of its Ram pick-up truck in Mexico, while GM makes the electric versions of the Chevrolet Equinox there.)
In a statement released on Wednesday, Fain said: “With these tariffs, thousands of good-paying blue collar auto jobs could be brought back to working-class communities across the United States within a matter of months.” But many industry experts are dubious about that, in effect saying that the UAW should be careful what it wishes for. Trump’s aggressive trade war as well as his on-again, off-again deployment of tariffs has badly shaken consumer and corporate confidence, caused stock markets to tumble and made many economists warn that the strong economy Trump inherited from Biden could sink into recession.
Slumping consumer confidence, together with soaring sticker prices, could take a serious bite out of US car sales and cause production to sink. In an unhappy forecast, Jonathan Smoke, chief economist at Cox Automotive, a market research firm, said that as a result of Trump’s auto tariffs, US plants would churn out 20,000 fewer cars per week, about a 30% drop compared with before Trump imposed the tariffs. “By mid-April we expect disruption to virtually all North American vehicle production,” Smoke said in a Wednesday conference call with clients and journalists. “Bottom line: lower production, tighter supply and higher prices are around the corner.”
As for Trump’s dream that his tariffs will result in far more domestic auto production long term, that could prove elusive. During Trump’s two months back in office, he has disconcerted and discombobulated corporate executives by sowing uncertainty and instability – by his and Elon Musk’s tearing up of the federal government; by his repeatedly flouting federal law and the constitution; and by his imposing tariffs one day, then suspending them the next day, and then reimposing them a few days later. Moreover, Trump has executives fearing an economic downturn, with his commerce secretary, Howard Lutnick, saying Trump’s policies are “worth it” even if they cause a recession.
When CEOs are feeling so uncertain due to Trump’s volatility, capriciousness and antics – as well has him changing his mind every few days on trade policy – that Trump-induced sense of instability means auto executives are unlikely to do what Trump wants: to rush to invest a billion or two to build a new auto plant. If Trump and his team had gone about imposing tariffs with a far steadier hand and had made their case in a more thoughtful, non-Trumpian way, then many executives would be far more open to building auto plants and other plants in the US in response to tariffs.
The Canadian Chamber of Commerce warned that Trump’s auto tariffs could backfire badly. In a statement, the chamber said: “Throwing away tens of thousands of jobs on both sides of the border will mean giving up North America’s auto leadership role, instead encouraging companies to build and hire anywhere else but here. This tax hike puts plants and workers at risk for generations, if not forever.”
Trump’s sudden announcement on auto tariffs will certainly help him in one way – it made tariffs the nation’s lead news story and pushed to the side those hard-hitting stories about the Trump administration’s acutely embarrassing leak on bombing Yemen. On the other side of the ledger, the tariffs will hurt Trump and the US in a profound way. By imposing a 25% tariff on auto imports from Canada and Mexico, Trump, many trade experts say, is blatantly violating the United States-Mexico-Canada Agreement, a free trade agreement that Trump signed in his first term. (Trump once called it the “best and most important trade deal ever made by the USA”.) Brad Setser, an expert on global trade at the Council of Foreign Relations, said this breach of the USMCA would hurt the US’s credibility and “may raise questions about the value of any future deals Trump signs”.
For decades, the UAW has been right about the need for Washington to do more to prevent the loss of manufacturing jobs (and to help those workers who lost their factory jobs). But with Trump, the UAW seems to be betting on an unsteady, capricious – and anti-union – general to win a trade war, but as veteran racetrack bettors will tell you, unsteady horses rarely win the race.
Steven Greenhouse is a labor reporter.
