How Trump’s tariffs are damaging the automotive industry: Costs are rising for the auto sector and soon for consumers
Tariffs on vehicles and parts are squeezing automakers’ profits, disrupting global supply chains, and setting the stage for higher car prices for U.S. consumers.
Automakers are being hit hard by President Trump’s tariffs. Because the supply chains of vehicle manufacturers are so complicated — with raw materials and parts moving around the globe before finding their place in the final product — even if a company makes its vehicles in the U.S., it’s likely they will be paying significant tariffs. Take Tesla, for example, which pays tariffs on the batteries for its EVs despite manufacturing in the U.S.
How hard have automakers been hit?
Looking at numbers from the end of the June quarter, the total hit to the automotive industry stands at around $11.7 billion, based on the companies’ financial disclosures.
Japanese automaker Toyota saw a $3 billion hit to its fiscal Q1 (June 30) operating income.
German manufacturer Volkswagen saw a financial impact of just over $1.5 billion, while American automaker General Motors reported a $1.1 billion hit.
Why are automakers so vulnerable to Trump’s tariffs?
For foreign manufacturers like Toyota and Honda, imports from their domestic factories in Japan are hit with 15% tariffs, while their operations in Canada and Mexico face higher auto sector tariffs of 25%. Many companies have significant operations in Canada and Mexico because the NAFTA free trade agreement previously covered North America.
What will be the impact of the tariffs?
At the end of the day, the tariffs are going to hit consumers’ pockets. While automakers are doing their best to absorb the costs and avoid raising sticker prices, the fact is companies cannot afford to operate with low or negative margins on their products.
Experts expect consumer prices to start going up this fall and continue rising next year.
One way automakers may try to avoid raising sticker prices is by removing incentives and raising interest rates on financing.
Why don’t automakers just move production to the U.S.?
Relocating production is far from simple. Building or retooling an automotive plant costs billions of dollars and can take years to complete. For companies facing tariffs that may only last for the remainder of Trump’s term, the expense and disruption outweigh the potential savings. Automakers also choose plant locations based on access to suppliers, skilled labor, and established logistics networks — factors not easily replicated on short notice.
So while the tariffs may be painful in the short term, they may not force manufacturers to change complex production models that require years of planning and massive capital investment.
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