Trump drives trade war fears with new auto tariffs

Asian auto stocks fell on Thursday after US President Donald Trump unveiled a 25% tariff on imported vehicles, expanding a global trade war and prompting criticism and threats of retaliation from affected US allies.

The new levies on cars and light trucks will take effect on April 3, the day after Trump plans to announce reciprocal tariffs aimed at the countries responsible for the bulk of the US trade deficit. They come on top of duties already introduced on steel and aluminum, and on goods from Mexico, Canada, and China.

The US imported $474 billion worth of automotive products in 2024, including passenger cars worth $220 billion. Mexico, Japan, South Korea, Canada, and Germany, all close US allies, were the biggest suppliers.

European Commission President Ursula von der Leyen described the move as “bad for businesses, worse for consumers,” while Canadian Prime Minister Mark Carney labeled the tariffs a “direct attack” on Canadian workers and said retaliatory measures were being considered.

“We will defend our workers, we will defend our companies, we will defend our country, and we will defend it together,” Carney told reporters in Ottawa.

Automakers such as Toyota Motor and Mazda Motor led declines in stocks in Japan, which relies on autos for more than a quarter of its exports to the US. Shares of automakers in South Korea, Hyundai Motor and Kia Corporation, fell sharply, while India automakers and parts suppliers also slid.

Japanese Prime Minister Shigeru Ishiba said Tokyo will put “all options on the table” in dealing with the new tariffs and South Korea said it would put in place an emergency response for its hard-hit auto industry by April.

Brazil’s President Luiz Inacio Lula da Silvasaid Trump risked damaging the US economy with additional tariffs.

“It will raise the prices of goods and could lead to inflation that he hasn’t yet realised,” Lula said on Thursday at a press conference in Tokyo. “Protectionism doesn’t help any country in the world,” he added, vowing to lodge a complaint with the World Trade Organization over a trade levy on Brazilian steel.

Trump sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining US industrial base.

Many trade experts, however, expect prices to initially rise and demand to fall, hurting a global auto industry that is already reeling from uncertainty caused by Trump’s rapid-fire tariff threats and occasional reversals.

“We’re going to charge countries for doing business in our country and taking our jobs, taking our wealth, taking a lot of the things that they’ve been taking over the years,” Trump said at the Oval Office on Wednesday. “They’ve taken so much out of our country, friend and foe and frankly, friend has been oftentimes much worse than foe.”

Early on Thursday, Trump said he might hit the EU and Canada with larger tariffs if they teamed up to retaliate.

“If the European Union works with Canada in order to do economic harm to the USA, large scale Tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had,” he said in a post on Truth Social.

Praise from UAW

The United Auto Workers, long-standing critics of free trade agreements it says have destroyed American jobs, lauded the move.

“These tariffs are a major step in the right direction for autoworkers and blue-collar communities across the country, and it is now on the automakers, from the Big Three to Volkswagen and beyond, to bring back good union jobs to the US,” UAW president Shawn Fain said in a statement.

Volkswagen, Europe’s top car maker, is in the frame since 43% of its US sales are sourced from Mexico, S&P Global Mobility estimates.

Shares of US automakers, which are highly integrated with plants and suppliers in Canada and Mexico, fell in after-hours trading, while US equity index futures slid, indicating stocks were headed for a lower open on Thursday.

Brad Setser, a former US Treasury official now with the Council on Foreign Relations, said some 4 million cars from Canada and Mexico now faced 25% or more tariffs, which would likely drive up prices and dampen US car sales for “a while.”

The Center for Automotive Research said the new levies were expected to cost car buyers thousands of dollars more, hitting new vehicle sales and resulting in job losses, since the US automotive industry relies heavily on imported parts.

“The tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers, and fewer manufacturing jobs in the US” Jennifer Safavian, president and CEO of Autos Drive America, a trade group representing foreign automakers, said in a statement.

Trump’s directive included temporary exemptions for auto parts while government officials sort through the complexities of turning his proclamation into practice.

Since taking office on January 20, Trump has announced and delayed tariffs on Canada and Mexico for what he alleges is their role in allowing the opioid fentanyl into the US; set import taxes on goods from China for the same reason; launched hefty duties on imports of steel and aluminum; and has repeatedly touted his plans to announce global reciprocal tariffs on April 2.

Kyle Rodda, an analyst at Capital.com, said the big concern was that next week’s announcement on reciprocal tariffs may not mark the end of the Trump administration’s shake-up of global trade.

“This potentially drags out trade uncertainty even longer and raises the question of how radical a change to the global trade order is Trump trying to bring about,” Rodda said.

Trump said on Wednesday auto tariffs could be net neutral for Tesla, the electric car company that is led by Elon Musk, who is also spearheading a government cost-cutting effort.

Musk later posted on X that Tesla would not be unscathed. “The tariff impact on Tesla is still significant,” he wrote. – Rappler.com