Washington: US President Donald Trump on Wednesday said he was placing 25 per cent tariffs on auto imports, a move the White House claims would foster domestic manufacturing but could also put a financial squeeze on automakers that depend on global supply chains, the Associated Press reported.
"This will continue to spur growth. We'll effectively be charging a 25 per cent tariff," Trump told reporters.
The tariffs, which the White House expects to raise USD 100 billion in revenue annually, could be complicated as even US automakers source their components from around the world.
The tax hike starting April means automakers could face higher costs and lower sales, though Trump argues that the tariffs will lead to more factories opening in the United States and the end of what he judges to be a “ridiculous” supply chain in which auto parts and finished vehicles are manufactured across the United States, Canada and Mexico.
To underscore his seriousness about the tariffs directive he signed, Trump said, "This is permanent."
Shares in General Motors fell roughly 3 per cent in Wednesday trading. Ford's stock was up slightly. Shares in Stellantis, the owner of Jeep and Chrysler, dropped nearly 3.6 per cent.
Trump has long said that tariffs against auto imports would be a defining policy of his presidency, betting that the costs created by the taxes would cause more production to relocate to the United States while helping narrow the budget deficit.
However, US and foreign automakers have plants around the world to accommodate global sales while maintaining competitive prices, and it could take years for companies to design, build, and open the new factories that Trump is promising.
"We're looking at much higher vehicle prices,” said economist Mary Lovely, a senior fellow at the Peterson Institute for International Economics.
“We're going to see reduced choice. These kinds of taxes fall more heavily on the middle and working class." She said more households would be priced out of the new car market -- where prices already average about USD 49,000 -- and will have to hang on to ageing vehicles.
Trump said that tariffs on autos would start being collected on April 3.
If the taxes are fully passed onto consumers, the average auto price on an imported vehicle could jump by USD 12,500, a sum that could feed into overall inflation.
“This is a very direct attack. We will defend our workers. We will defend our companies. We will defend our country," Canadian Prime Minister Mark Carney said
“Tariffs are taxes — bad for businesses, worse for consumers equally in the U.S. and the European Union,” European Commission President Ursula von der Leyen said in a statement, adding that the EU's executive branch would assess the impact of the move, as well as other US tariffs planned for coming days.
As Trump announced the new tariffs, he indicated that he would like to provide a new incentive to help car buyers by allowing them to deduct from their federal income taxes the interest paid on auto loans, so long as their vehicles were made in America.