Experts have warned that Donald Trump’s proposed tariff increase could result in significant financial and logistical challenges for both car buyers and manufacturers.
The U.S. president has threatened to impose a 25% tariff on goods from Canada and Mexico starting on February 1.
The auto industry has raised concerns over the impact this could have. The price of the average car is expected to rise by around $3,000 due to the tariff hike, as it would increase the cost of each part and vehicle.
The U.S. is the second-largest auto market in the world, and most cars sold in the U.S. contain parts made in either Mexico or Canada, which would be subject to these new tariffs.
It was emphasized that even cars manufactured within the U.S. often contain significant numbers of parts from the neighboring countries.
While Trump has previously used the threat of tariffs to encourage automakers to relocate production to the United States, experts believe this latest tariff proposal will only drive up costs for U.S. consumers and harm global manufacturers, including those in Germany.
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Hildegard Mueller, the head of the German Automotive Industry Association (VDA), which represents more than 620 companies in the sector, warned that the tariff increase could also fuel inflation in the U.S. Mueller pointed out that Trump had promised to reduce inflation during his campaign, adding that the association was hopeful that further discussions on this issue would take place.
Analysts have expressed concerns that these tariffs would not only lead to higher car prices but also result in job losses in the short term.
It was highlighted that North American car companies have been operating cross-border for decades, with more than a billion dollars worth of cars and parts crossing U.S. borders with Canada and Mexico every day. Vehicles often cross between the U.S. and Canada multiple times during the manufacturing process.
Experts also raised questions about the specifics of how these tariffs would be applied, especially regarding the parts of the manufacturing process that would be affected, as well as how it would impact the used car market and repairs, given that many spare parts are sourced from outside the U.S.
Additionally, the tariff proposal has complicated the auto industry’s response to President Biden’s push for electric vehicles (EVs).
Biden’s administration had set an ambitious goal for 56% of all new U.S. vehicles to be electric by 2032, but Trump has since rolled back his predecessor’s target. Despite this, automakers have already invested heavily in new factories dedicated to EV production within the U.S.
It was reported on Tuesday that tariffs on Mexican auto imports would have a negative impact on U.S., European, Japanese, and South Korean automakers and suppliers alike.
Automakers had spent considerable time negotiating with Trump’s team ahead of his inauguration, attempting to prevent the imposition of tariffs.
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Sources within the auto industry revealed that John Elkann, chairman of Stellantis (parent company of Dodge), spent four days in Washington meeting with Trump and top officials. Volkswagen has also engaged with the Trump administration in an effort to persuade him to reconsider the proposed tariffs.
German automakers like Volkswagen, Mercedes-Benz, and BMW, all of which have plants in Republican-leaning states, have emphasized their commitment to U.S. production.