CNN WIRE

By Chris Isidore, CNN

New York (CNN) — President Donald Trump threatened to place a tariff of around 25% on cars imported into the United States, a policy that could raise prices on cars from most automakers – including American car brands – almost immediately after the tariffs are imposed.

The tariffs could add thousands of dollars to the cost of cars, automotive experts say. That could put the price of cars, already near record highs, out of reach for many buyers.

Trump, announcing the 25% tariffs Tuesday, said the tariffs would likely be imposed April 2 after a review period that concludes April 1. He said the tariff would gradually rise, penalizing automakers that export cars to the United States rather than making them in the United States. Trump said the tariffs would be delayed until the spring in part to give automakers time to move their operations to America.

But automakers can not move production of cars quickly, even if they have excess capacity at US plants, or have closed plants in the past. It can take years to shift production of cars to a new line.

“If the administration moves forward with a 25% tariff on all auto imports, car shoppers should get ready for some sticker shock at dealerships,” said David Greene, an industry analyst at Cars.com.

Trump also did not say if the tariffs would apply to auto parts, although he did say there would be tariffs on semiconductors, which are an important component of modern automobiles. A shortage of semiconductors coming out of the pandemic caused car prices to soar and production of cars fell and demand was stronger than expected.

If the supply of cars imported to US dealerships slows or stops due to tariffs, that would limit the supply of cars available for US buyers, and it would likely lead to an increase in prices, even for US-built vehicles due to the basic economics of supply and demand, according to experts. It could even raise prices for used cars, which is what happened when the chip shortage coming out of the recession limited new car supplies and drove up prices across the industry.

“If new car prices increase, more buyers will shift toward used vehicles, and as demand rises, so will prices,” Greene said.

‘A lot of cost and a lot of chaos’

The president offered no details about which countries, if any, would be included in the tariffs and whether the import taxes would include exemptions, such as companies that manufacture cars across the North American free trade zone under the US-Mexico-Canada trade agreement that Trump signed during his first term. Most automakers that have US plants also have plants in Mexico and many have plants in Canada as well. If production stops or slows in those plants, it could also hurt US parts factories, because they get a significant amount of those parts imported from the United States.

Earlier this month, Trump announced a 25% tariff on all goods from Mexico and Canada, other than energy imports from Canada, which were to hit with 10% tariffs. But he quickly put those tariffs on hold until March 1 after the governments of those countries agreed to take steps to control illegal immigrations and drugs moving over their US borders, steps that they had previously announced in many cases.

Those plans for Canadian and Mexican tariffs and the quick reversal has made it difficult for automakers to know exactly what to do about US trade policy and their operations. Automakers have indicated they can adjust to tariffs if they were to last for a relatively short period of time, but that it would cause greater problems if tariffs were to be longer term.

“So far what we’re seeing is a lot of cost and a lot of chaos,” said Ford CEO Jim Farley in comments to investors earlier this month.

But automakers have made clear that if tariffs are imposed long-term, it will drive up their cost of operations.

“Let’s be real honest: Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the US industry that we’ve never seen,” Farley said in those comments to investors.

In comments at a different investors conference Wednesday morning, General Motors CFO Paul Jacobson repeated earlier statements from the company that it was prepared to make moves to adjust for tariffs that might be short term in nature, but that it would be more difficult if it appears that tariffs are going to be in place longer term.

“If they become permanent, then there’s a whole bunch of different things that you have to think about, in terms of where do you allocate plants, do you move plants, etc.,” he said. But he said making those kinds of costly moves are difficult given the policy’s uncertainties.

“Those are questions that just don’t have an answer today,” he said. “As much as the market is pricing in a big impact of tariffs and lost profitability, think about a world where we’re spending billions in capital, and then it ends. We can’t be whipsawing the business back and forth.”

No such thing as an all-American car

Depending on how the tariffs are imposed, price increases could hit cars built at American auto plants, all of which have Canadian and Mexican parts that can not easily be replaced. Automakers in the United States, Canada and Mexico have operated as a relatively unified market for years because of the NAFTA trade deal and the USMCA treaty that replaced it. Vehicles and parts have moved freely across the border, sometimes multiple times before a car is completed.

There is no such thing as an all-American vehicle: Even the Ford F-150 pickup, America’s best-selling vehicle model for more than 40 years, gets less than half of its parts from US factories.

But many foreign automakers build cars in North America, including Toyota, Honda, Volkswagen, Subaru, Kia, Hyundai and many others – although they also export some models to the United States. So even if Canada and Mexico are exempted from the new tariffs, some foreign-made cars would get pricier.

Automakers impacted by the tariffs may cut back production of some models to see how the fight over tariffs plays out, which could deplete the supply of cars and trucks that are already on dealerships’ lots and showrooms. That limited supply itself could quickly lead to higher prices.

For example, the average days’ supply of vehicles now available at US dealerships range from 25 days for Toyota Motor, which includes Lexus, to 73 days supply for Ford Motor, which includes its Lincoln luxury brand.

And even if auto tariffs were to shift more production to the US, companies would still have to contend with the 25% tariffs on steel and aluminum imports Trump recently enacted. That would likely increase the cost of domestically-built vehicles, said Kevin Roberts, director of economic and market intelligence at CarGurus.

Hundreds of billions of dollars in auto imports

In 2024 US auto plants produced 10.4 million vehicles, according to data from S&P Global Mobility. Nearly half of that car and truck production is for European or Asian brands, such as Toyota, Honda, BMW and Mercedes. And some of those vehicles are exported to buyers in Canada and Mexico.

Last year, the United States imported $217 billion worth of passenger vehicles, according to Commerce Department data. Over a fifth of those cars came from Mexico, the top source of auto imports last year. Behind Mexico were Japan, South Korea, Canada and Germany, which exported a total of $131 billion worth of passenger cars to the US last year.

Meanwhile, the United States exported $59 billion worth of passenger cars across the world last year, a decline from 2023, when the US exported $64 billion worth of them.

When it comes to motor vehicle parts, US imports, which totaled $149 billion, more than doubled the value of exports last year, trade figures show.

US auto production has been steadily declining over the past decade. In 2014, the US produced more than 4 million finished cars, according to Commerce Department data. Last year, the US produced 1.7 million finished cars.

CNN’s Elisabeth Buchwald contributed to this report.