Trump's New Car Tariffs Are a $100 Billion Tax Increase No One Wants

The president gleefully predicted that the cost to consumers could be as much as 10 times higher.

If there's one positive thing to be said about President Donald Trump's latest tariff announcement, perhaps it is this: Few trade policy moves are more abundantly counterproductive and costly than tariffs on cars and car parts.

That's a lesson the Trump administration is apparently determined to learn the hard way. On Wednesday, Trump announced a new set of 25 percent tariffs that will apply to imported cars and the components that go into cars built in the United States. Trump says those moves will promote domestic auto manufacturing, but that seems unlikely. Instead, the tariffs will make cars and light trucks more expensive, and will likely reduce the number of cars made and sold in America. They are bad news for auto workers, auto dealers, and consumers.

The only winner is likely to be the federal government's tax coffers. The White House projects that the tariffs will generate $100 billion in new revenue for the government—money that Americans will pay for the privilege of buying a car the government dislikes for arbitrary reasons. Americans imported nearly 8 million cars in 2024, and the biggest sources of imported cars were Mexico, Japan, and South Korea.

At Wednesday's press conference announcing the tariffs, Trump immediately disputed his own staff's estimates on the tariffs and predicted a much higher tax increase on Americans: "I think ultimately, we could probably [get] anywhere from $600 billion to $1 trillion," Trump said. "I think we'll go from $600 [billion] to a trillion in two years."

That's probably just Trumpian bluster—as always, Trump thinks bigger numbers are better, even when those numbers are the result of a tax increase he's imposed on Americans. And, as economist Erika York pointed out, if the goal of the tariffs is to draw more manufacturing into the United States, then the tariff revenue would decline over time rather than increase.

Whatever the final figure turns out to be, these new tariffs will be a significant disruption for the auto industry in the U.S., which employs more than 7 million people. Even before Wednesday's announcement, industry insiders projected lower sales and economic disruptions due to Trump's other tariffs (and tariff threats). Cox Automotive projects that there will be 700,000 fewer cars sold in America this year, a 4.3 percent decline from last year's total, as Americans pull back on spending due to the higher prices created by tariffs.

In the wake of Wednesday's announcement, Jonathan Smoke, a chief economist at Cox Automotive, told The New York Times that 25 percent tariffs on cars and car parts would add an estimated $3,000 to the cost of cars built in the United States, with higher price hikes likely for foreign-made cars. He estimated that American factories will produce about 30 percent fewer cars as a result of the tariffs and that the industry is prepared for "disruption to virtually all North American vehicle production."

But why would even American-made cars be impacted by the tariffs? Because there really is no such thing as a fully American-made car. According to an annual survey published by American University, there was not a single car brand that sourced all its parts domestically in 2024. New tariffs on car parts will hurt some brands more than others—Tesla, notably, seems poised to be hurt less than most of its competitors—but the damage will be widespread.

History suggests that's exactly what will happen. The last time the U.S. engaged in widespread auto protectionism was in the late 1980s when the Reagan administration imposed import quotas on Japanese cars. The result? Higher prices for cars made in Japan, of course, but also higher prices for cars made in America and Europe. Facing less competition, carmakers simply started charging more. That means the $100 billion tax increase will likely not be the only cost incurred by these tariffs.

Once again, it's worth asking what Trump hopes to accomplish here. The White House says Trump is bringing back "MADE IN AMERICA" with these tariffs, but the American automotive industry is already thriving—not in spite of foreign trade, but because of it.

Three decades after the North American Free Trade Agreement (NAFTA) was signed, the supply chains for American automakers stretch across the whole continent. "Ultimately, a vehicle is considered an import when it is shipped to the United States after undergoing final assembly in another country. But many vehicles—including those assembled in America—are composites of parts that come from all over the world," notes The New York Times in an explainer about the modern automotive manufacturing supply chains that someone at the White House probably ought to read.

Drawing these political distinctions between domestic and foreign cars is pretty silly in a marketplace that is increasingly integrated. Is a BMW built in South Carolina a foreign car because of the name on the hood? What about a Toyota truck assembled in Tennessee? What about a Ford that's built in Mexico with parts sourced from every corner of the globe? None of these questions are as black-and-white as the Trump administration wants to make them, and that's just fine—we should trust the market, not politicians, to build the best car.