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U.S. President Donald Trump fueled global trade tensions on Wednesday by announcing a sweeping 25% tariff on all foreign-made cars and automobile parts. The tariffs will be in addition to those already in place, specifically 2.5% on passenger vehicles and 25% on pickup trucks, and take effect on April 2, 2025.
Trump is convinced that the tariffs will help the US automotive industry “flourish like it has never flourished before.” However, analysts also warn that the tariffs could drive up car prices by several thousand dollars and impact production.
Furthermore, it could trigger retaliatory measures and disrupt global supply chains. “We should expect higher prices for cars in the U.S. And we should expect retaliation from at least some of our trading partners, impacting U.S. exporters of autos and other products,” commented Wendy Cutler, Vice President of Asia Society Policy Institute, a think tank based in Washington.
“If reciprocal tariffs are added to these and other tariffs imposed since January 20th, we will be approaching the ‘prohibitive’ tariff zone where trade ceases along with tariff revenues,” she added.
Asian markets’ reaction to 25% Trump tariffs
Asian stock markets fell Thursday following the tariff announcement, with automakers the worst performers on the Topix index. Mazda shares fell by more than 6%, Toyota slid 4.6%, Nissan dropped 3.9%, and Honda fell 3.4%.
Economists agree that the additional 25% tariffs on cars and auto parts will have a significant impact on Japan. Tomohiro Ota, an economist at Goldman Sachs, wrote in a report this week that vehicles account for more than 30% of Japan’s exports to the US and 7% of total exports. The 25% tariffs would reduce Japan’s gross domestic product by more than 0.1 percentage points at the margin, the report said.
South Korean car makers are also hit hard by the new tariffs, as automobiles account for the largest share of their exports to the US.
In 2024, South Korea exported $34.74 bn worth of automobiles to the U.S., representing 49.1% of its total global car exports. Hyundai Motor and its sister Kia together export around 1 million cars to the US. Their shares fell by around 4.4% and 3.5%, respectively, on Thursday.
DWS Group’s Chief Investment Officer, Vincenzo Vedda, commented that “the chances of the tariff chaos coming to an end are probably small”.
“Yes, Trump has been busy marketing April 2nd as ‘liberation day,’ when his latest slew of tariffs directed towards 15 of the U.S. main trading partners will be announced or implemented,” Vedda wrote in a daily market update. “But will this really be the end of Trump using the main tool he has at his hands when dealing with foreign economic policy?”
Meanwhile, Japan’s Prime Minister Shigeru Ishiba said in a parliamentary session on Thursday, “We need to consider appropriate responses. […] All options will be on the table.”
