President Donald Trump’s latest tariff announcement is revving up some high-octane controversy.
The plan includes a 25% levy on all imported cars to begin on April 3, while a similar duty on the auto-parts-supply chain will be imposed the following month. The delay will give companies operating within the USMCA trade pact time to verify U.S. made components.
The White House expects the tariff effort to raise $100 billion in revenue annually.
💵💰Don’t miss the move: Subscribe to TheStreet’s free daily newsletter 💰💵
The American Automotive Policy Council, which represents domestic automakers, said “it is critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector.”
“U.S. automakers are committed to President Trump’s vision of increasing automotive production and jobs in the U.S. and will continue to work with the administration on durable policies that help Americans,” the group’s president, former Republican Gov. Matt Blunt of Missouri, said.
The Wall Street Journal reported on March 28 that in a phone call last month, Trump threatened the top automakers if they raised prices in response to the tariffs. Some of the auto-company representatives on the call feared the companies would be punished if they raised prices, people familiar with the call told the paper.
Meanwhile, Hildegard Müller, president of the German Association of the Automotive Industry, said the tariffs “send a disastrous signal for free, rules-based trade.”
President Donald Trump says the tariffs ‘will continue to spur growth like you haven’t seen before.’
Andrew Harnik/Getty Images
Analyst: Administration encourages reshoring
“The tariffs, which are scheduled to take effect on April 3, place a significant burden on both companies and the automotive industry’s closely interwoven global supply chains — with negative consequences especially for consumers, also including those in North America,” Müller said.
While the situation can always change, analysts at Deutsche Bank said, they sense that the administration fundamentally supports incremental tariffs to encourage reshoring and that these are more than just a negotiating tactic.
Related: Analyst reboots Carvana stock price target on pullback
“Therefore, even if the tariffs are modified and/or exemptions are granted, the industry may not return to the status quo for the next four years,” the firm said in a research note to investors.
Deutsche Bank said Tesla (TSLA) and Ford (F) appear to be the most shielded from the tariffs given the location of their vehicle-assembly facilities, although Ford faces incremental exposure on imported engines.
General Motors (GM) has the most exposure to Mexico, the investment firm said.
Auto industry expert: Tariffs risky for unions
Ian Greer, research professor at Cornell University’s School of Industrial and Labor Relations, said the Trump administration’s tariffs “may seem a blessing for U.S. autoworkers, and many trade unionists welcome the end of free trade, but these tariffs are risky for unionized auto workers.”
For union members in Canada and the many U.S. workers who make parts for vehicles assembled in Canada, the tariffs threaten jobs by increasing the price of the end products, Greer said.
Related: Analysts reboot FedEx stock price targets after earnings
“In the electric vehicle segment, tariffs are a boon to fiercely antiunion Tesla, which will benefit from the disarray of competitors (including the Big Three) who need time to rethink production strategies and retool factories,” he said.
“Any new automotive jobs will be overwhelmingly nonunion, and Republicans in state and federal governments will work to keep them that way,” Greer added.
Investor sees tremendous uncertainty
James “Rev Shark” DePorre, a regular contributor to TheStreet Pro, said the key issue now was whether the European Union would respond in a way that develops into a full-blown trade war.
“Trump promises a very harsh response should retaliatory tariffs be put into place,” the veteran investor said in his TheStreet Pro column, noting that investment firm Barclays says the combined tariff could be 40% to 50% and hit nearly half the vehicles sold in the U.S.
“There is still a tremendous amount of uncertainty about how this will develop, but the market reaction so far indicates that it is hopeful that negotiations will intensify and a solution is found,” he added.
DePorre said that if the tariffs go into place for the long term, a complete restructuring of the worldwide auto industry could follow.
Even before the election, consumers appeared to be cutting back on discretionary spending. And earnings growth is decelerating in nine of 11 S&P 500 sectors, he reported.
Related: Fed inflation gauge shows early tariff impact
DePorre said that market corrections precede a recession about 50% of the time.
So far, market players remain optimistic that the U.S. can avoid a recession, he said, but the longer this corrective action continues, the greater the likelihood that a recession will develop.
“It is a mess out there right now, with both tariff and economic uncertainty at extremely high levels,” DePorre said. “The problems are reflected in the price action.”
After the poor action on March 26 — the S&P 500 fell 1.1% that day — the indexes are still above the lows hit on March 13, but the odds of a retest have increased, he said.
A retest occurs when the price of an asset, after breaking through a key support or resistance level, moves back to that same level.
So what is Rev Shark going to do now?
“My game plan is to play defense and trade in very-short-term time frames.” he said. “I have little interest in building longer-term positions until technical conditions improve.”
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
