Opinion
Review & Outlook
Trump’s Giant New Car and Truck Tax
He’s dead set on remaking the economy on his import substitution model.
By The Editorial Board
March 27, 2025 5:50 pm ET
So much for the idea that President Trump views tariffs as a negotiating tool to reduce everyone else’s tariffs. That was always implausible, and the illusion went poof Wednesday with Mr. Trump’s executive order imposing 25% tariffs on all imported cars and trucks. He wants border taxes for their own sake, so get used to it.
“We’re going to charge countries for doing business in our country and taking our jobs, taking our wealth,” the President said in unveiling the tariffs. It’s pointless trying to persuade him that nobody is stealing Americans’ lunch and that trade can be good for both parties. But readers should know they are about to pay more for their cars and have less choice to boot.
Mr. Trump justifies his car tariffs as a “national security” threat under Section 232 of the 1962 Trade Expansion Act. As we wrote in 2019 when he tried this gambit, he apparently fears the attack of the killer Toyotas.
Canada and Mexico, those global menaces, account for about half of U.S. auto imports. U.S. allies in South Korea, Japan and Europe account for almost all the rest. Imports give Americans more choices, and at lower prices, than they would otherwise have if all cars sold in the U.S. had to be made domestically. Americans as a result can afford more and better cars than they could a few decades ago. This is a security threat to whom exactly?
Mr. Trump’s order laments that “only about half of the vehicles sold in the United States are manufactured domestically, a decline that jeopardizes our domestic industrial base and national security.” While sales of U.S.-made cars are lower than before the pandemic, that’s because inflation made many unaffordable to middle-class Americans.
Tariffs will raise car prices even more—as much as $10,000 per car according to Wedbush Securities. This will reduce sales and hurt domestic auto dealers and workers. U.S. manufacturers will suffer most because a relatively larger share of their sales are in the U.S. Thinner margins will dent auto-worker profit-sharing.
That’s one reason GM shares fell 7.4% on Thursday. The exception is Tesla, by the way, which makes the cars it sells here in the U.S. Count this as one more government-aided Tesla advantage over competitors.
Mr. Trump backed off auto tariffs in his first term after being warned about this damage. Instead he negotiated the USMCA trade deal with Mexico and Canada, which includes provisions designed to increase domestic auto production—e.g., at least 45% of auto content must be made by workers earning at least $16 an hour.
Now Mr. Trump’s tariffs seem designed to blow up the USMCA and other trade agreements. His Administration says it plans to renegotiate USMCA, but why would Canada and Mexico go along if Mr. Trump can renege on its commitments willy-nilly? By the way, other U.S. businesses will be whacked like innocent bystanders when our trading partners inevitably retaliate.
Some Trump advisers and friends have peddled the line that he merely wants a level tariff playing field. But the average U.S. tariff rate (2.7%) on foreign goods is higher than the average rate in Canada (1.8%), Japan (2%) and Europe (2%), and roughly the same as in Mexico, according to the World Bank. While other countries impose non-tariff barriers, so does the U.S.
Andy Laperriere of Piper Sandler estimates that Mr. Trump’s auto tariffs, when combined with his levies on China, steel and aluminum, will raise the effective U.S. tariff rate to nearly 8%, the highest in 75 years. See the Tax Foundation data nearby. And this is before Mr. Trump unveils his long-touted “reciprocal” tariffs next week, which won’t be reciprocal at all. Mr. Trump said this week they’ll be whatever he decides, which could change at any moment based on presidential whim.
Mr. Trump was asked Wednesday if his tariffs would be permanent, and he said “100%.” There will also be no exemptions (save for U.S. content in foreign-made cars to avoid punishing U.S. parts manufacturers, at least for now). Mr. Trump wants every car sold in America to be made in America, all 16 million a year. Even if this goal were economically rational, it would take many years and hundreds of billions of dollars in new investment.
Car makers have already invested countless billions in efficient supply chains to make cars that middle-class Americans can afford. They will now have to spend hundreds of billions more that could be invested in more productive ways. And all because Mr. Trump has an economic development model based on the fantasy of “import substitution.” That model kept India poor for decades.
President Biden sought to transform the U.S. economy based on his vision of government industrial policy. Mr. Trump is also trying to transform the economy according to his industrial vision. He’d better hope his deregulation and tax policies offset the harm from his tariffs, or he could suffer Mr. Biden’s fate.
Appeared in the March 28, 2025, print edition as 'Trump’s Giant New Car Tax'.
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