President-elect Donald Trump, who is about to take office, vowed to quickly fulfill his campaign promises, imposing tariffs on imports from Mexico and Canada on his first day in office. Trump announced that he would impose a 25% tariff on all goods from Mexico and Canada while threatening to impose a 10% tariff on Chinese goods, although he did not specify whether this measure would take effect on his first day in office.
This policy will have a serious impact on the automotive industry and may lead to higher prices for new cars for American consumers in the long run. "On January 20... I will sign all necessary documents to impose a 25% tariff on all goods from Mexico and Canada," Trump wrote on Truth Social, "This tariff will remain in effect until drugs, especially fentanyl, and all illegal immigration stops invading our country."
Automotive industry facing impact
The free trade between the United States, Canada, and Mexico has lasted for decades and has profoundly influenced the formation of the North American automotive industry. However, a 25% tariff would affect nearly all automotive manufacturers, as almost all manufacturers selling cars in the United States have production or supply capabilities from Canada or Mexico.
Ford Motor Company (F.N) closed down 2.6% on Tuesday, reporting $11.10 per share; General Motors (GM.N) shares plummeted 9%, closing at $54.79 per share; Stellantis (STLA.N) shares fell 5.7%, reporting $12.61. Analysts pointed out that this decline is directly related to the exposure of each company in the Mexican market. General Motors, with its significant business in Mexico, will face greater cost pressures. Bernstein analyst Daniel Roeska estimated that tariffs could reduce General Motors' margin by 2 to 3 percentage points, while Stellantis and Ford's margins could decrease by 2 percentage points and 1 to 2 percentage points, respectively.
Ford issued a statement emphasizing: "Ford's commitment to manufacturing in the U.S. is unparalleled. We produce the most vehicles, employ the most American workers, and export the most vehicles from the U.S. to other markets." However, General Motors and Stellantis did not comment on this.
Global automotive stocks under pressure
Asian and European markets have also not been spared. Nissan's shares fell 3.6%, Honda Motor (HMC.N) dropped 1.9%, and Toyota Motor (TM.N) fell 1%. In European trading, Volkswagen dropped 2.3%, and BMW fell 1.1%. In comparison, Tesla was minimally affected since all of its North American assembly operations are located in the U.S., with its shares only dropping 0.1%.
According to estimates from Barron's, a 10% tariff could increase the price of new cars by 4% to 5%, while a 25% tariff could lead to an 8% increase. Price hikes could not only reduce demand but also lead to a decline in sales. Baird analyst Luke Junk expects that a 25% tariff could result in a reduction of approximately 1.1 million vehicles sold in the U.S.
Policy threats may serve as negotiation leverage
However, some analysts believe that this threat may only be a negotiation tactic rather than a final decision. Roeska pointed out: "Technically, tariffs on China are possible, but imposing tariffs on Canada and Mexico would contradict the existing US-Mexico-Canada Agreement (USMCA). Such a large-scale impact seems hard to imagine and appears more like a bargaining chip at the moment."
Nonetheless, Trump can indeed implement tariffs through executive orders under the guise of 'national security.' This radical tariff policy has triggered market concerns about a trade war, especially with Europe potentially becoming the next target.
Hargreaves Lansdown analyst Matt Britzman stated in a report on Tuesday: "The president-elect's tough stance has heightened fears of a trade war, and investors are increasingly worried that Europe may become his next target."
Article reposted from: Jin Shi Data