Auto Tariffs Put Markets in Reverse Gear

The market is in a tailspin, and it’s all thanks to President Trump’s latest move. On March 27, 2025, the President signed an executive order placing a 25% tariff on foreign-made autos, set to begin in April. This move has sent shockwaves through the stock market, with the S&P 500 and the Dow Jones Industrial Average falling just over 0.3%, and the tech-heavy Nasdaq Composite leading the losses with a drop of more than 0.5%. The auto industry, in particular, is feeling the heat, with automaker stocks in Japan and Europe slumping as Wall Street assesses the potential hit from the new tariffs.



The impact on major US automakers has been immediate and severe. General Motors (GM) stock was pummeled with a 7% loss, Ford (F) fell almost 4%, and Stellantis (STLA) dropped over 1%. Tesla (TSLA), seen as the least exposed to tariffs among the automakers, ticked higher. However, even Tesla will feel the impact as some of its parts are imported from other countries.

The tariffs are expected to have significant impacts on the profitability and stock performance of major US automakers, both in the short and long term. In the short term, the immediate stock decline and increased production costs are likely to weigh heavily on these companies. In the long term, the impact will depend on how automakers adapt to the new tariff environment, including potential shifts in manufacturing and the broader economic and trade dynamics.

The economic consequences of these tariffs are far-reaching. The tariffs are likely to exacerbate inflationary pressures, with the Anderson Economic Group estimating that the impact of tariffs on production costs could range between $3,500 to $12,000 or more per vehicle, depending upon the model. This increase in production costs will likely be passed on to consumers, leading to higher prices for cars. Higher car prices could deter buyers and force automakers to curtail production, potentially leading to job losses in the auto industry.

Investors remain worried that the US economy could slide into recession if Trump's new levies exacerbate sticky inflation and slowing economic growth. The Personal Consumption Expenditures index, the Federal Reserve's preferred inflation gauge, is set to be released on Friday, along with a check on consumer spending. Fed Chair Jerome Powell recently reassured markets that rising prices from Trump's tariffs are expected to be "transitory." However, this stance has raised questions, including from St. Louis Fed president Alberto Musalem.

The tariffs could also lead to retaliatory measures from other countries, potentially escalating into a full-blown trade war. This could further disrupt global supply chains and impact the profitability of US automakers. The European Automobile Manufacturers’ Association (ACEA) has already expressed deep concern over the new tariffs, warning of the negative impact on global auto makers and US domestic manufacturing.

In conclusion, the 25% tariffs on foreign-made autos are likely to have a significant negative impact on the profitability and stock performance of major US automakers in the short term due to increased production costs and potential price increases for consumers. In the long term, the impact will depend on how automakers adapt to the new tariff environment, including potential shifts in manufacturing and the broader economic and trade dynamics. The economic consequences of these tariffs are far-reaching, with potential impacts on inflation, consumer spending, and the risk of recession.