On Wednesday the United States (U.S.) President Donald Trump announced a reciprocal tariff plan which will apply import taxes on all goods entering the nation.
In an attempt to “liberate” the U.S. economy, Trump has turned the trade order up on its head and added extra tariff costs for every single one of its global trading partners.
The U.S. President announced a baseline tariff of 10% on all imports from all trade partners, with the “worst offenders” facing higher rates, such as China (34%) and the European Union (20%).
However the auto industry has not faced any further duties since Trump announced a 25% tariff directly on automobiles entering the U.S.
The incentive behind the tariff add-ons is to motivate manufacturers to build their production lines on U.S. soil.
During the announcement of the tariff plan in the White House rose garden, the President said:
“We will supercharge our domestic industrial base, we will pry open foreign markets and break down foreign trade barriers. Ultimately, more production at home will mean stronger competition and lower prices for consumers,”
However, the auto industry faces a shared issue: no single car is 100% U.S. made.
With thousands of auto parts coming from all over the world to build a vehicle, manufacturing costs are expected to soar for carmakers as they absorb the tariff costs.
Car production lines could take a long time to move to the U.S. if manufacturers want to avoid tariffs, meaning auto costs could soon surge, making a it much more expensive for customers to buy new vehicles.
“I think it’s going to lead cars to be made in one location,” added Trump.
There will be an exemption for vehicles that are made in Canada and Mexico, so long as the parts are United States-Mexico-Canada Agreement (USMCA) compliant Those exemptions cover a large percentage of vehicles and parts imported from Canada and Mexico.
Trump commented on the “privilege” of trading with the U.S. He added:
“Foreign nations will finally be asked to pay for the privilege of access to our market, the biggest market in the world.”
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