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New York
CNN
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Tariffs are a subject that, for weeks, has been difficult to write about. The Trump administration’s plans seem to shift by the hour; certain industries end up with carve-outs; and new announcements seem to come from out of nowhere. Like Wednesday night, when President Donald Trump announced 25% tariffs on imported cars — roughly half the vehicles sold in America — starting in one week.
While carmakers weren’t terribly surprised by the news — even though it arrived a week ahead of schedule — the twist that almost no one expected in this announcement was the inclusion of car parts, which drastically complicates an already tough situation for the global auto industry.
There’s a lot to unpack here. But I’ll try to keep this simple (and pray that the White House doesn’t do a 180 on all of this before this newsletter goes out).
The upshot for consumers is indisputable:
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The cost of your next car, whether it is from an American or foreign manufacturer, is going up. That’s because there is no such thing as an “all-American” vehicle, as my colleague Chris Isidore notes. Even the Ford F-150, the most popular vehicle in the country for decades, is composed of just 45% American or Canadian-made parts.
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How much the cost will go up is hard to predict. Carmakers will try to absorb some of the costs before passing them along to customers. Safe bet, though, according to analysts: Your next car may cost between $2,000 and $10,000 more if these tariffs go into effect.
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It will happen fast. “I would think prices would start to change in the one-to-two weeks after the tariffs go into effect,” Peter Nagle, automotive economist for S&P Global Mobility, told CNN.
For the US auto industry:
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Production costs will go up. Estimates range between $3,500 to $12,000 or more per vehicle, depending upon the model, according to the Anderson Economic Group, a Michigan-based think tank.
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Manufacturers are not rushing to move plants to the US, as the tariffs would, in theory, compel them to. As Chris notes, Trump’s on-again-off-again levies don’t provide the certainty that automakers need to invest billions of dollars in new plants. Yes, the president said the tariffs would be permanent. But carmakers have watched the administration flip-flop a couple of times already on Canadian and Mexican tariffs this year, so they’re not necessarily ready to make the big investments that permanent tariffs would require.
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The more immediate move may be to cut back on production while they wait for more clarity. Of course, less production means fewer cars, which can drive up prices for consumers once again.
For the economy:
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Once again, uncertainty reigns. But higher prices, at least for a while, are inevitable.
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“I’d buckle in,” economist Mark Zandi told CNN. “I think this means higher prices and fewer jobs.”
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His take: If the tariffs do go through, prices will inevitably go up. But other countries will respond with tariffs on the US, and that means American manufacturers will have trouble selling their products to other countries, and therefore they’ll scale back production and cut jobs.
The market reaction to the auto tariffs illustrated how conditioned traders have become to uncertainty under Trump 2.0.
US and foreign auto stocks took a beating, as you might expect, with Tesla being a notable exception. Elon Musk’s electric vehicle company is expected to fare better than its domestic rivals because it builds all of its US-bound cars in California and Texas, and many of its cars are near the top of the list when it comes to American-made parts.
The broader market took the tariff news more or less in stride. Stocks were mostly flat Thursday until a late afternoon slump. That muted response might seem a little surprising given, well, all of the potential damage from the raft of tariffs Trump has promised to unveil next Wednesday, April 2, which he calls “Liberation Day.”
What’s with that?
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A lot can change in a few days, and investors have pretty much priced in a degree of volatility.
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Despite a growing sense of unease among consumers and some shakiness in the labor market, the economy is still in pretty good shape. On Thursday, investors were digesting the tariff news but also taking in jobless numbers (holding steady from last week) and waiting on a bunch of economic data due out Friday, including a closely watched measure of inflation.
“To a certain extent, the markets are looking at (tariffs) and they’re saying, ‘I’d like to press the fast forward button 12 months to see where we end up in all this,’” Dan Alpert, managing parter of Westwood Capital Management, told me Thursday. “It’s so much that is being thrown at the economy… so much that it is massively dislocated, and it will end up with a result that is very difficult to predict because of its wide-ranging nature.”
The major stock indexes tend to get the spotlight, but in the coming days and weeks, all eyes will be on the bond market, which acts as a kind of weather vane for economic health.
“If the bond market had sold off… we would have a big problem, and the stock market would tank,” he said. “Right right now, the bond market is not reacting in the way that it might if there was a conviction that this was going to lead to continuous inflationary pressures.”
