Stock markets fell on news that the auto tariffs would be imposed, with shares in American automakers declining. The S&P 500 was down more than 1 percent in midafternoon trading. Most auto stocks were down.
Tariffs could encourage auto companies to set up more factories in the United States, a primary goal for Mr. Trump. But they will also translate into higher costs for consumers. And depending on how broadly they are imposed, tariffs could also backfire, harming the U.S. auto industry by disrupting supply chains for carmakers, squeezing their profits and chilling their investments.
The measure could also set off more trade clashes with foreign countries, particularly European nations, Japan and South Korea, whose companies send many cars to the United States.
Nearly half of all vehicles sold in the United States are imported, and almost 60 percent of the parts in vehicles assembled in the United States are imported, according to data from the Wall Street research firm Bernstein.
Putting tariffs on foreign cars is an idea that the president has mentioned more frequently in recent weeks, and it would significantly expand the economic impact of his trade moves.
The auto industry is a major employer in the United States but heavily dependent on foreign parts. Car companies have also set up their supply chains to snake across the borders with Canada and Mexico. And cars are often the single biggest purchase for American families, meaning that additional costs from tariffs could weigh heavily on consumers.
Ken Kim, a senior economist at KPMG Economics, said in a note on Wednesday that, according to industry estimates, the price of a new vehicle would increase by several thousand dollars because of tariffs. He said he had seen a “sizable jump” in orders for vehicles and parts in February, as the car industry put in more orders before tariffs on steel and aluminum would go into effect.
The car tariffs would add to other expansive levies Mr. Trump has introduced in recent months. Since coming into office, Mr. Trump has put an additional 20 percent tariff on all U.S. imports from China. He also imposed a 25 percent tariff on almost all goods from Canada and Mexico, before exempting roughly half of those imports, which trade under the rules of the North American trade agreement.
Mr. Trump plans to introduce more levies on April 2, when he has said he will announce “reciprocal tariffs” that match the high tariffs and other trade barriers that other countries impose on American exports.
During Mr. Trump’s first term, his administration carried out an investigation into car imports under a legal authority known as Section 232, and concluded that car imports threatened U.S. national security. Experts said Mr. Trump might be able to dust off that finding and move quickly to impose tariffs.
Most, though not all, cars trade under the North American trade agreement, so they aren’t currently facing the 25 percent tariff on other imports from Canada and Mexico. Barring exceptions for autos or components, 25 percent tariffs on goods from Mexico and Canada would add $3,000 even to the cost of a car built in the United States, said Jonathan Smoke, chief economist at Cox Automotive, a market research firm. Automakers depend on components from Mexico and Canada.
Tariffs would add $6,000 to price of a car made in Mexico or Canada, a category that includes vehicles like the Toyota Tacoma pickup, gasoline and electric versions of the Chevrolet Equinox, and several models of Ram pickups, according to Cox estimates. Ram is owned by Stellantis, which also produces Dodge, Chrysler and Fiat vehicles.
Higher prices will deter buyers and force automakers to curtail production, Mr. Smoke said. He estimated that U.S. factories will produce 20,000 fewer cars per week, or about 30 percent less than usual.
“By mid-April we expect disruption to virtually all North American vehicle production,” Mr. Smoke said Wednesday on a conference call with clients and reporters. “Bottom line: lower production, tighter supply and higher prices are around the corner.”
About 1 million Americans are employed by auto and parts manufacturers, according to the Bureau of Labor Statistics, and another 2 million people are employed at dealers that sell cars and parts. Both groups could be hit hard by lower auto production and higher prices that lead to fewer sales.
There could be a temporary benefit for companies including Ford, Hyundai and Stellantis that have large numbers of unsold vehicles on dealer lots. Vehicle shortages caused by tariffs will allow them to clear inventory without cutting prices. But the benefit would be short lived.
Carmakers may be able to blunt some of the impact from tariffs because they have designed factories to produce different models on the same assembly line.
“Changes in production are always an option,” said Jörg Burzer, a member of the management board at Mercedes-Benz who oversees production at the German automaker.
But it will not be possible for Mercedes to completely avoid the impact of tariffs, which will add substantially to the prices for new cars. Tariffs “would definitely add to the cost, that’s clear,” Mr. Burzer said in an interview in Berlin last week.
In an effort to appease the Trump administration, some foreign carmakers have pledged to expand their manufacturing operations in the United States.
Hyundai Motor Corporation said during an event with President Trump at the White House on Monday that it would invest $21 billion in the United States over the next four years. The South Korean company, which already has large factories in Georgia and Alabama, said that the new investments will include a factory in Louisiana to produce steel for Hyundai, Kia and Genesis cars.
Mercedes-Benz, which produces S.U.V.’s in Alabama, plans to expand its U.S. operations, Ola Källenius, the chief executive of Mercedes, said in an interview in Rome this month. “We are 100 percent committed to the United States and will continue to be so and are poised to do more,” Mr. Källenius said, without giving specifics.
Mr. Källenius acknowledged that there is an imbalance between the tariffs that Europe and the United States impose on auto imports. The United States charges a 2.5 percent tariff on cars from Germany and other European Union countries, while the European Union charges a 10 percent tariff on American cars.
“Why not go zero-zero?” Mr. Källenius asked.
