Trump's Tariff Hike: A Storm Brewing for Ford and GM

As President Trump's administration ramps up its trade war with China, the auto industry braces for the impact of increased tariffs on imported vehicles and auto parts. The latest round of tariffs, which went into effect this week, imposes an additional 10% levy on imports from China, affecting a small number of U.S. vehicles. However, the tariffs also hit auto parts, which could increase already heightened vehicle prices for consumers.

The U.S. in recent years has imported roughly $15.4 billion to more than $17.5 billion worth of transportation goods from China, including $9 billion to $10 billion in auto parts and accessories for vehicles and tractors, among other special purpose vehicles, according to the U.S. International Trade Commission. The largest impact on actual vehicles will be on Ford Motor's Lincoln Nautilus and General Motors' Buick Envision, which accounted for 83,884, or 95%, of the 88,515 China-made vehicles sold in the U.S. last year.

"It's mainly GM and Ford that are really hit from a volume standpoint," said Jeff Schuster, GlobalData vice president of automotive research. "Our domestic guys are the ones taking the brunt of this, at least from for full vehicles … but it can be muted to some extent."

The tariffs are not only affecting the pricing of vehicles but also the affordability for consumers. Stephanie Valdez Streaty, director of industry insights at market researcher Cox Automotive, noted that anything that increases prices is difficult for consumers who are already facing difficulties in affording vehicles. General Motors Co.'s shares fell 9% on Tuesday, the biggest drop since 2020, while shares of Ford Motor Co. and Stellantis NV also declined.

The auto industry's outsized role in U.S.-Mexico trade was on full display Tuesday, as Mexico President Claudia Sheinbaum invoked GM, Ford, and Stellantis by name as she suggested the country could raise tariffs of its own in response to new levies by Trump. "One tariff will be followed by another in response, and so on until we put common companies at risk," she said during her daily press conference in Mexico City. "The main exporters from Mexico to the US are General Motors, Stellantis, and Ford Motor Company, which arrived 80 years ago. Why put in place a tariff that puts them at risk?"

GM has one of its four North American plants making large pickup trucks in Silao, Mexico, with much of its production coming to the U.S. The Detroit-based carmaker also imports the Chevrolet Equinox EV from a plant in Ramos Arizpe, which also builds the Blazer EV. The Equinox starts at $35,000 and played a big role in GM's surge in plug-in sales in the second half of this year.

Additional levies could also pose risk to a push by Jeep and Ram brand owner Stellantis to shift its manufacturing footprint to lower-cost countries, including Mexico. It's part of an effort by Chief Executive Officer Carlos Tavares to drive down the cost of EVs and offset higher labor expenses in the US — a strategy squarely at odds with the agenda of Trump's incoming administration.

The automaker has laid off thousands of workers in Michigan and Ohio this year, including 1,100 at a truck plant in Warren, Michigan. At the same time, it's expanding a truck plant in Saltillo, Mexico to make Ram 1500 pickups in addition to the heavy-duty trucks it already makes there.

Given the magnitude of auto industry fallout from additional tariffs, "we'd expect most investors to assume Trump ultimately does not follow through with these threats," Wolfe analysts led by Emmanuel Rosner said in their note. "However, we can't say for sure."

Chris Feuell, the CEO of the Ram brand, said last week that the company would be flexible in navigating any policy changes from the 47th president and could potentially revise its investment plans. At an industry conference in New York last week, Ford Chief Financial Officer John Lawler said the company has been gaming out various scenarios to determine what impact tariffs might have on their business and how the company would adjust pricing.

In conclusion, Trump's tariff hike on Chinese imports is a storm brewing for Ford and GM, with potential impacts on vehicle pricing, affordability, and the auto industry's supply chain. The increased tariffs on auto parts and vehicles could lead to higher production costs, increased vehicle prices, and potential job losses in the long run. The auto industry's outsized role in U.S.-Mexico trade and the retaliation risk from Mexico further exacerbate this issue. Ford and GM must navigate these challenges and adapt their production locations and sourcing strategies to mitigate the impact of tariffs on their businesses.