Tariffs Will Be “Armageddon” For US Auto Industry

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Last Updated on: 31st March 2025, 11:42 am

The United States government plan to impose 25% tariffs on all imported cars and trucks is scheduled to go into effect on April 3, with similar tariffs on imported automotive parts and components to follow shortly thereafter. Dan Ives, an analyst for Wedbush Securities, told Bloomberg that the tariffs are a “back breaker and Armageddon” for the automotive industry. Following discussions with several people within the industry globally, Ives said the conclusion was that tariffs would cause “pure chaos” and increase the average price of cars between $5,000 to $15,000 in the US.

“Every automaker in the world will have to raise prices in some form selling into the US,” Ives wrote in a note published on Friday. “The supply chain logistics of this tariff announcement heard around the world is hard to even put our arms around at this moment.” He suggested they would push up prices by as much as $10,000 or more in the US. “We continue to believe this is some form of negotiation and these tariffs could change by the week,” he added, “although this initial 25 percent tariff on autos from outside the US is almost an untenable head-scratching number for the US consumer.”

It has been a while since any cars and trucks have been 100% US-made. Readers may recall that for the past 40 years or so, globalization was the prevailing economic model. As a result, supply chains have truly become global. A few years ago, Volkswagen suffered a setback when the wiring harnesses it used in many of its vehicles became unavailable because they were manufactured in Ukraine. After the invasion of that country by Russia, those wiring harnesses were no longer available.

Tariffs & Globalization

The thing that is difficult for many to understand is that the new tariffs are meant to apply to cars and components sourced from Canada and Mexico. For all intents and purposes, the US auto industry has become international, thanks to globalization, with many parts and components manufactured in either Canada or Mexico, or both. You may have thought there was a long standing trade agreement between all three countries, but the current administration cares not for such niceties and believes it can act unilaterally without consequences. So far, that seems to be true.

Ives said 40 to 50% of the parts used in cars built by US automakers domestically come from abroad. In order to bring 10% of the industry’s supply chain to the US, it would take three years and cost “hundreds of billions with much complexity and disruption,” he estimated. “No one” is a winner from the tariff — not even Tesla, which had been viewed as a beneficiary, as it will also have to raise prices, Ives claimed. “The concept of this auto tariff in our view would be a back breaker and Armageddon for the auto industry globally and throws the supply chain into pure panic mode. We believe this adds up to $100 billion of costs annually to the auto industry and will essentially get passed directly onto the consumer and clearly erode demand on day one of tariffs.”

Bewildered

While more details on the tariffs are expected, Ives said investors will be left “bewildered.” The tariff announcement and the 25% figure will continue to pressure General Motors and other carmakers and suppliers until more clarity is provided, Ives added. The average US tariff rate has already shot up from 2.5% to 8.4% this year, the highest level since 1946, according to the Tax Foundation. Alex Durante, its senior economist, said the country is “inching towards” the kind of tariffs last seen since the 1930s, when the Smoot-Hawley bill, among the most decried pieces of legislation in US history, introduced tariffs on thousands of goods. “With each tariff action we’re rapidly approaching a universal tariff that would be damaging to the economy,” said Durante. “Behind the scenes, I think there is probably some concern, even among some of [Trump’s] staff, that they’re rapidly approaching the point of no return.”

Morgan Stanley analyst Adam Jonas told the Detroit Free Press that if the tariffs remain intact, it would lead to the “cubanization” of the auto industry, meaning buyers would be likely to keep their cars longer and avoid purchasing new ones. If the price of new cars rises by thousands of dollars, that seems highly likely. But it could provide a boost to the price of used cars, if new vehicles become unaffordable to many Americans. Cox Automotive analyst Erin Keating told Reuters that the pandemic had priced 10% of American car buyers out of the market and that the new tariffs were likely to cause a similar effect.

This Is Very Exciting!

Prior to the announcement of the new tariffs, the president told his cabinet, “This is very exciting.” The excitement is far from universal, The Guardian reports. “The escalating tariffs are a body blow to the global trading system,” said Eswar Prasad, professor of trade policy at Cornell University, and a former official at the International Monetary Fund. “We are shifting to a world where a commonly accepted set of rules is being displaced by unilateral actions that ostensibly promote a fair trading system, but will instead create volatility and uncertainty, inhibiting the free flow of goods and financial capital across national borders.”

Among those expressing concerns  on Sunday about the tariff situation is US senator Rand Paul, who until now has been a staunch supporter of the current administration. “International trade since [the second world war] has made us phenomenally rich,” Paul said. He disagreed with the claim by the president that the US has been taken advantage of. “But I really strongly disagree because trade has made us so rich and really has made the world a better place.”

In an interview with NBC News, the US president said his permanent tariffs on foreign-made automobiles would be a boost to US factories and was confident the move would lead to increased sales of American made cars. “I hope they raise their prices, because if they do, people are gonna buy American made cars,” he said. Within the administration, the new tariff policy is being touted as Liberation Day. Liberation from what is not exactly clear. The Guardian suggests it might be more accurate to call it Liability Day.