Trump auto tariffs force carmakers into difficult decisions

Trump’s 25 percent auto tariffs leave carmakers weighing whether to raise prices or absorb the cost.

An aerial view shows Toyota and Lexus cars and SUVs being unloaded from car carrier ships at the Toyota Logistics Services Inc. automotive processing terminal at the Port of Long Beach in Long Beach, California, on April 10, 2025. Photo by Patrick T. Fallon/AFP

By Anna Fadiah and Hayu Andini

US President Donald Trump's aggressive and fast-evolving trade agenda has thrust carmakers into a precarious position. The Trump auto tariffs, particularly the 25 percent levy on imported automobiles enacted on April 3, are now beginning to impact an industry built on global supply chains and long-term investment cycles. While some automakers had managed to delay the effects by leaning on existing inventory, the moment of reckoning is fast approaching.

The Trump auto tariffs have so far hit mostly behind the scenes. Dealerships continue to sell vehicles that arrived before the tariffs went into effect. But once those cars are gone, companies face a stark choice: absorb the increased costs, or shift the burden to consumers through higher prices.

Kjell Gruner, president and CEO of Volkswagen Group of America, summed up the dilemma succinctly at an industry conference this week. “No one in this entire value chain can just absorb it,” he said. “We can’t say the customers need to swallow it. That price increase would be too high. We can’t also say the dealers need to. Nor can we.”

A short-term buffer, but a looming storm

For now, inventories are insulating the consumer market from the immediate price shock of Trump’s automobile import tariffs. Industry analysts suggest that this situation may persist through most of April. But as inventories shrink and new shipments arrive under the 25 percent levy, the industry will need to confront tough decisions.

Gruner emphasized the importance of clear and consistent communication with customers, especially as pricing strategies evolve. “These things won’t change overnight,” he said, suggesting that brands are trying to manage the transition gradually rather than unleashing a sudden price spike.

Tariffs take center stage at the auto forum

The growing concern around the Trump auto tariffs was the dominant topic at this year’s Automotive Forum, held ahead of the New York International Auto Show. Since returning to the presidency in January, Trump has made trade tariffs a central element of his economic policy platform.

While the administration recently walked back some of the harsher reciprocal tariffs targeting countries like Canada and Mexico, it left the steel, aluminum, and automobile import tariffs firmly in place. These, in particular, are expected to reshape the dynamics of the US auto market in the months to come.

On Monday, Trump appeared to waver slightly on the auto import tariffs, suggesting he might consider adjustments to assist domestic carmakers. “We’re looking at something to help some of the car companies,” he said. But such statements have only added to the uncertainty surrounding trade policy.

Long-term investment, short-term chaos

One of the key criticisms from industry experts is that the unpredictable nature of Trump’s trade policies threatens the kind of stable commercial environment that automobile manufacturing depends on. Building factories, expanding production, and maintaining supplier relationships all require planning that stretches years into the future — not policies that change in a matter of weeks.

“Capital investments in this industry are long-term commitments,” said Patrick Manzi, chief economist at the National Automobile Dealers Association. “When the rules of the game keep changing, it becomes harder to justify those investments.”

Manzi also painted a gloomy economic picture, warning that consumers are already pulling back on large purchases. He has increased his estimate of the likelihood of a US recession to 60 percent.

Auto companies reaffirm their commitment to US manufacturing

Despite the uncertainty, several automakers used the forum to highlight their ongoing investments in American operations. Volvo, for instance, showcased increased production at its South Carolina plant, while Nissan pointed to its recent decision to maintain a second shift at its Tennessee factory. These moves are part of broader efforts to insulate themselves from the worst effects of the Trump car tariffs by ramping up local production.

Hyundai North America CEO Randy Parker referenced the company’s recent $21 billion investment in a new steel plant in Louisiana — a project unveiled at a White House event in March. Speaking with some irony, Parker remarked, “Tariff policy might have changed since I last checked my phone,” a nod to the volatility of current trade directives.

Nevertheless, Parker reiterated Hyundai’s central strategy: “Our plan is to sell cars, period. Sell like hell.”

Consumers rush to buy before prices rise

Several automakers, including Ford, Nissan, and Hyundai, have promised to hold prices steady in the short term. This move appears to have boosted auto sales in March, with consumers rushing to purchase vehicles ahead of anticipated price increases.

Thomas King, president of data analytics at JD Power, confirmed the trend. “We’ve seen strong sales through March, and that momentum has carried into April,” he said. But he cautioned that this trend is likely to reverse by the third quarter.

King forecasts that, barring any policy changes, car prices will climb roughly five percent by the fourth quarter due to the Trump auto tariffs. This could result in an eight percent drop in US auto sales, assuming current economic conditions persist. If the US economy slips into recession, the impact could be even more pronounced.

A fragile equilibrium under threat

For now, the industry is balancing on a razor’s edge — trying to maintain consumer confidence, protect dealer margins, and continue investing in US operations, all while navigating a trade landscape that shifts week to week. The Trump auto tariffs have injected a level of unpredictability that many automakers find deeply troubling.

What remains to be seen is whether Trump will follow through on his stated goal of revisiting the 25 percent levy. Until then, carmakers must prepare for a world in which every vehicle shipment is a costlier proposition — and every pricing decision carries the risk of alienating customers or damaging the bottom line.

In an industry defined by forward planning, Trump's backward-looking protectionist instincts have created a landscape of reaction rather than strategy. And for carmakers facing millions in potential losses, that’s a road with few good exits.