Economist Warns: Trump's 25% Tariffs Could Cripple US Auto Industry

In a stark warning, noted economist Arthur Laffer has cautioned that President Donald Trump’s proposed 25% tariffs on auto imports could inflict "irreparable damage" on the U.S. auto industry. Laffer, who was awarded the Presidential Medal of Freedom by Trump in 2019, argues that these tariffs could add a staggering $4,711 to the cost of a vehicle, severely weakening the competitive edge of U.S. automakers against their foreign counterparts.



Laffer’s 21-page analysis, obtained by The Associated Press, paints a grim picture of the potential fallout. He warns that the proposed tariffs could shrink or even eliminate profit margins for U.S. manufacturers, making it nearly impossible for them to compete with international rivals. The analysis underscores that the tariffs could contradict the administration’s goals of strengthening U.S. manufacturing and economic stability.

The White House has temporarily exempted auto and parts imports under the USMCA from the tariffs starting on April 3, allowing the Trump administration to develop a process for taxing non-U.S. content in vehicles and parts that fall under the agreement. However, Laffer’s analysis suggests that without this exemption, the proposed tariff risks causing irreparable damage to the industry.

Laffer’s warnings come at a time when the stock market and U.S. consumers are already rattled by Trump’s tariff plans. The analysis shows that the administration has yet to convince even its favored economists that the import taxes would deliver as promised. Laffer reminds Trump that it’s not too late to change course, specifically complimenting the USMCA negotiated in his first term as a “significant achievement.”

The analysis highlights that the per vehicle cost without the USMCA exemption would be $4,711, but that figure would be a lower $2,765 if the exemptions were sustained. This underscores the potential for significant cost increases if the tariffs are implemented without exemptions.

Trump, however, maintains that the 25% tariffs will cause more foreign and domestic automakers to expand production and open new factories in the United States. He celebrated a planned $5.8 billion investment by South Korean automaker Hyundai to build a steel plant in Louisiana as evidence that his strategy would succeed. Trump said the 25% auto tariffs would help to reduce the federal budget deficit while moving more production into the United States.



The potential long-term economic implications of the tariffs on the U.S. auto industry are severe. Supply chain disruptions, increased production costs, and potential retaliatory measures from foreign governments could lead to a significant economic downturn for the industry. These factors highlight the need for careful consideration and potential policy adjustments to mitigate the negative impacts.

In summary, the proposed 25% tariffs on auto imports pose a significant threat to the U.S. auto industry. While Trump’s administration believes these tariffs will boost domestic production, economists like Laffer warn of the potential for irreparable damage. The industry faces a critical juncture, and the decisions made in the coming months could shape its future for years to come.