Oops, President Donald Trump did it again. He rocked the financial markets, shocked the business community, and forced reporters to cover a signing in the White House during dinnertime by announcing auto tariffs. Following an event celebrating women, Trump confirmed 25% tariffs on foreign automobiles and car parts entering the country. And, based on recent public remarks, he’s just getting started.
Auto Tariffs, a Never-Ending Story
The president had a message for the global auto industry. If your cars are made in the United States, you will not face tariffs. Conversely, prepare for higher import duties if your vehicles are produced outside the world's largest economy. These auto tariffs are scheduled to go into effect on April 2, a day Trump has recently hyped as America's "Liberation Day," and are projected to generate more than $100 billion in annual revenues.
Trump thinks these levies will spur growth in the US auto industry. "I think our automobile business will flourish like it’s never flourished before," he told reporters in the Oval Office. He also believes tariffs will facilitate a transition to making cars manufactured in one location rather than crossing back and forth across borders. “Right now, a car would be made here, sent to Canada, sent to Mexico, sent all over the place. It’s ridiculous,” Trump added.
In addition, Trump urged Congress to approve a law allowing borrowers who buy a Made in America vehicle to deduct interest payments for income tax purposes. While this may reduce federal revenues, the president asserted that it will eventually pay for itself.
Automakers have signaled that they might be preparing to invest in US manufacturing to avoid auto tariffs. South Korea-based Hyundai announced a $21 billion investment, including a $5.8 billion plant in Louisiana. Scores of other companies, such as Honda and Volvo, are contemplating switching based on the size of tariff rates. Stellantis reiterated plans to reopen a shuttered Indiana plant, though this was part of its negotiations with the United Auto Workers during the union’s strike.
So, with auto tariffs, 25% duties on steel and aluminum imports, a 20% levy on Chinese goods, and forthcoming reciprocal tariffs, the administration is done, right? Not quite. According to President Trump, he plans to introduce impose levies on lumber, pharmaceuticals, and semiconductors in the coming days. But he might be more “flexible” or “lenient.”
A Softer Trade Stance?
Prior to the president’s auto tariffs, investors were cheering on the prospects of a softer trade policy position by Trump. Late last week, Trump conveyed to reporters that he might be flexible with trading partners. “I don’t change. But the word flexibility is an important word,” Trump stated. “Sometimes it’s flexibility. So there’ll be flexibility, but basically, it’s reciprocal.” At the Hyundai news conference, Trump hinted that he would “give a lot of countries breaks.”
His March 25 Newsmax interview might have been the most telling. "I’ll probably be more lenient than reciprocal because if I was reciprocal, that would be very tough for people," he said. "I know there are some exceptions, and it’s an ongoing discussion, but not too many, not too many exceptions."
Trump administration officials have also signaled that the April 2 tariffs might not be as stringent as the markets are anticipating. Kevin Hassett, the National Economic Council director, explained to the Fox Business Network that markets are overreacting and expecting massive tariffs on every single country. The reality, he says, will likely be different.
“One of the things we see from markets is they’re expecting they’re going to be these really large tariffs on every single country,” Hassett said in the March 19 interview with host Maria Bartiromo. “Markets need to change their expectations because it’s not everybody that cheats us on trade; it’s just a few countries, and those countries are going to be seeing some tariffs.”
Treasury Secretary Scott Bessent also told the network that he thinks some parties will reach deals with the United States before the April 2 deadline. That said, the reciprocal tariffs plan will examine other factors, such as currency practices, government subsidies, and other non-tariff trade barriers. “On April 2, each country will receive a number that we believe represents their tariffs,” Bessent explained. “For some countries, it could be quite low; for some countries, it could be quite high."
But will a more polite approach to trade policy be enough to win a trade war?
Should I Stay or Should I Go?
If there is one thing that markets detest, it is uncertainty. This has been the common theme on both Wall Street and Main Street. And this uncertainty is triggering confusion, consternation, and chaos. Is this what the Trump administration is banking on? Considering that the Cabinet contains a couple of seasoned hedge fund billionaires, maybe the White House is making the markets dance to their tunes. Or perhaps it is as the meme goes: implement tariffs, the market falls, rollback tariffs, the market recovers – rinse and repeat. It is the new normal.
