It was Matthew McConaughey who told us that sometimes you gotta go back to actually move forward.
The actor made this astute observation in a 2014 commercial for Ford’s (F) Lincoln, which is one of the many car companies likely to feel the impact of President Donald Trump’s a 25% tariff on all imported cars, set to begin on April 3.
💵💰Don’t miss the move: Subscribe to TheStreet’s free daily newsletter 💰💵
A similar duty on the auto-parts-supply chain will be imposed the following month, Trump said, giving companies operating within the USMCA trade pact time to verify U.S.-made components.
More than 100 car models are assembled in the U.S. but rely on parts from manufacturers based in other countries, Newsweek reported, citing data from the National Highway Traffic Safety Administration.
The list includes dozens of household names, including Honda, (HMC) Toyota’s (TM) Lexus, GM’s (GM) Cadillac and, yes, Lincoln.
The White House said Donald Trump’s decision to put tariffs on imports of autos and auto parts will protect and strengthen the U.S. automotive sector
Andrew Harnik/Getty Images
Navellier: Volatility is the new normal
The Canadians don’t like where this is going.
Prime Minister Mark Carney declared that Trump’s auto tariffs are a “direct attack” on his country and that the trade war is hurting Americans, noting that U.S. consumer confidence is at a multiyear low.
More Automotive:
Tesla’s Elon Musk offers Americans cheaper cars, robot friendsVeteran trader takes hard look at Tesla stock price amid slump, controversyTesla orders massive Cybertruck recall due to dangerous discovery
“We will defend our workers,” Carney said, according to the Associated Press. “We will defend our companies. We will defend our country.”
Analysts assessing the impact of the tariffs say pain will precede any benefits.
“Volatility is the new normal as we navigate the uncharted waters of Trump 2.0,” said Louis Navellier, chairman and founder of Navellier & Associates. “While it is very disruptive and unproven, tariffs may be the only way to make US manufacturing competitive.”
The end result, higher final prices, will have to be shared by consumers and producers, Navellier said.
“While inflationary in the short term, it is yet to be seen if it will be a one-time shift in higher prices or trigger an inflationary spiral,” he said. “The geopolitical risk of challenging all of our trading partners is reflected in gold hitting a new all-time high today of $3,100.”
Navellier called Trump’s move “a grand experiment.” The tariff strategy essentially offsets the higher costs of labor and environmental regulations of manufacturing in the U.S. by effectively taxing products that are produced where costs are lower, he said.
“It will take patience as the time to build a new-car plant in the US takes three to four years,” he said.
Cornell expert: ‘near-term price rises, falling sales’
Art Wheaton, director of labor studies and an expert on auto-industry relations at Cornell University’s School of Industrial and Labor Relations, expects the tariffs to prompt “chaos, price increases and falling sales in the near term.”
The tariff on autos and parts will create immediate price increases and wreak havoc on supply chains, he said.
Related: Top analyst overhauls GM, Ford stock prices targets amid tariff risk
“The U.S. imports about half of the autos we sell and a significant chunk of the parts,” Wheaton said, noting that imposing the tariff could raise vehicle prices as much as $10,000 to $20,000.
“If the end goal is to increase production of parts and assembly in the United States, then the tariffs would likely need to be consistent for decades to allow planning for the shifting supply chain,” he said.
Wheaton said that this was achieved for trucks via the “chicken tax” on light trucks. Enacted in 1964 to retaliate for Europe’s tariff’s on U.S exports of chicken, the tax enabled GM, Ford and Stellantis (STLA) outsized market share on pickup-truck sales.
Fund manager: Potential for escalated tariffs
Chris Versace said the tariffs sure seem like a stick designed to drive car companies to build autos in the U.S.
“This is a good idea in principle when it comes to jobs but one that if successful will be measured in years, not months,” the lead manager of TheStreet Pro Portfolio said in his recent column.
Near term, though, Versace called it another headwind for earnings expectations.
“And with tariffs expected on both finished automobiles as well as auto parts starting on April 3, it’s a pretty safe bet that margin and EPS expectations will be dialed back in the coming weeks for auto [original equipment manufacturers] and their suppliers,” he said.
Related: Analyst reboots Carvana stock price target on pullback
With nearly half of all vehicles sold in the U.S. being imports, as well as nearly 60% of the parts in vehicles assembled in the U.S., vehicle prices almost certainly will get pushed up in response, Versace said.
Trump has suggested he would impose further tariffs on the EU and Canada if they worked together “to do economic harm” to the U.S.
“That sure sounds like the potential for tariff escalation to us, and that would only bring more uncertainty about the economy, inflation, and [Federal Reserve] policy — and also for corporate earnings prospects,” Versace said.
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
