Tariffs Will Cut US Auto Production and Lead to Layoffs, AEG Says

• President Trump says tariffs will force manufacturers to build new factories in the US and hire more American workers, but economic analyst firm AEG says it will tack on thousands of dollars per vehicle and lead to layoffs.
• On the low end, AEG estimates the tariffs could tack on $4,000 to the price of a new vehicle.
  
• Several experts are saying of the tariff plans that “they’re not very well thought out,” and some will lead to “a lot of cost and a lot of chaos.”

President Trump’s tariffs will add as much as $12,000 per vehicle and lead to a cut in production greater than from the fall 2023 United Auto Worker strike against General Motors, Ford, and Stellantis, according to consulting firm Anderson Economics Group (AEG). While the president says his tariffs will force manufacturers to build new factories in the US and hire more American workers, cuts in auto production could mean significant industry layoffs.

“We think if you were to do something, anything close to the tariffs that we’re talking about,” even at half the levels floated by the Trump White House, “you’re going to see a decline in domestic auto production,” AEG principal and CEO Patrick Anderson told the Automotive Press Association in its Real-Time Auto Intelligence webinar last Friday .

AEG’s estimated price increases include calculations for parts and components that cross US-Mexican or US-Canadian borders, often several times before final assembly, Anderson said.

On top of these impending tariffs, Trump says he will announce on April 2 a 25% tariff on auto imports, semiconductors, and pharmaceuticals.

On Monday Trump said the US is on schedule for tariffs in March on its US-Mexico-Canada (USMCA) trade partners, The Associated Press reports. Trump has said he will introduce tariffs on other trade partners on April 2.

“We’re on time with the tariffs, and it seems like that’s moving along rapidly,” Trump said.

But Mexican President Claudia Sheinbaum said she was confident of reaching an agreement with the US before that deadline, the AP reports.

If the chaotic nature of the tariffs Trump has proposed, so far, has boosted any business, it’s that of the consultancy and analytic firms and law firms as they try to sort through the “America First” trade policy, issued by the White House on January 27.

“We’ve been seeing with these announcements, they’re not very well thought out,” says Greg Husisian, chairman for international trade and national security practice for the international law firm, Foley & Lardner. “Right now, it would be virtually impossible for the auto sector to be risk-planning for the next 10 days.”

AEG’s Anderson evoked the words of Ford CEO Jim Farley, who on February 11 told an investor conference, “what we’re seeing is a lot of cost and a lot of chaos.”

The Trump administration has clear statutory authority for proposed reciprocal tariffs and for Trade Expansion Act Section 232, which includes a proclamation for steel and aluminum, Anderson said. There also is authority for the White House to renegotiate the US-Mexico-Canada (USMCA) trade agreement signed during the first Trump administration, as it contains a provision for renegotiation in 2026, though the negotiations have already begun with Trump’s January 20 executive order.

A fourth EO signed February 1, the Emergency Powers Act, lacks clear statutory authority, Anderson said.

AEG selected North American-assembled models from GM, Ford, Chrysler, Toyota, Honda, Kia, BMW, Audi, and Tesla, and European- or Asian-assembled models from Jaguar Land Rover, Mercedes-Benz, Audi, and Toyota to calculate the cost of a 25% tariff on Canadian and Mexican goods, and a 10% tariff on Chinese goods, including parts and supplies. The firm assumes these automakers will make a “strong effort to substitute and adjust production,” meaning that they would try to move as much sourcing and final assembly to US plants as possible.

Lowest tariff hit of the models studied would be about $4,000.

First example was a full-size SUV with “some Mexican content,” which would be tariffed at $9,000 above its sticker price. Next was a battery electric vehicle, which would cost $12,000 more. BEVs would take the biggest hit because they require more aluminum and steel content to handle the weight of the battery packs, Anderson said.

“Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the US industry that we’ve never seen,” Ford’s Farley told the investor conference, as reported by the Detroit Free Press. “Frankly, it gives free rein to South Korean, Japanese, and European companies that are bringing 1.5 million to 2 million vehicles into the US that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.”

Tariffs on US-produced vehicles entering Japan or South Korea are very low, according to Foley & Lardner’s Hisisian. Most European markets charge a tariff in the 10% range, while the US charges about 2½% for European imports, he said.

But South Korean, Japanese, and European automakers already bank on a lot of North American production that would be subject to the Mexican and Canadian tariffs, just like Ford and GM and Stellantis’ Chrysler.

Hyundai CEO José Muñoz told Axios in January that “the best way for us to navigate tariffs is to increase localization.”

Even with capacity for 700,000 Hyundai and Kia models from its 20-year-old Alabama assembly plant, about 40% of Hyundais sold in the US last year came from that factory. Hyundai in 2024 also opened its new Metaplant in Savannah, Georgia. Capacity is for 300,000 Hyundai, Kia and Genesis EVs, and the company says its working to add hybrid production there, to boost US production share well above 40%. Meanwhile, affiliate Hyundai Steel is looking at building a plant in the US, according to Reuters.

But like captive imports from Japan and Germany, and even the Detroit Three, Hyundai has a long way to go before it can escape tariffs altogether.

Trump is risking comparison with President Herbert Hoover with his tariffs, Hisisian says; “These are like Smoot-Hawley type tariffs.”

Smoot-Hawley, imposed in June 1930, a time when imports into the US were much, much smaller than today, in case you’ve forgotten your Econ 101 (or the cameo appearance by conservative economist Ben Stein in Ferris Bueller’s Day Off), is blamed for expanding and extending The Great Depression.

As a kid growing up in Metro Milwaukee, Todd Lassa impressed childhood friends with his ability to identify cars on the street by year, make, and model. But when American automakers put an end to yearly sheetmetal changes, Lassa turned his attention toward underpowered British sports cars with built-in oil leaks. After a varied early journalism career, he joined Autoweek, then worked in Motor Trend’s and Automobile’s Detroit bureaus, before escaping for Mountain Maryland with his wife, three dogs, three sports cars (only one of them British), and three bicycles. Lassa is founding editor of thehustings.news, which has nothing to do with cars.