U.S. President Trump made the automotive tariffs official. After markets closed yesterday, Trump said the U.S. would impose 25% tariffs on foreign automakers.
Ahead of the news, American automotive firms traded slightly higher. Ford Motor (F) stock bottomed, despite announcing a recent recall of 1.3 million F-150 trucks. F stock closed at $10.30, compared to its $9.06 low in the last 52 weeks.
Impact
The White House estimated that it would collect $100 billion in duties. This may prove too optimistic. Consumers will likely shun buying both domestic brand cars and those made by Volkswagen (VWAGY) and other foreign brands. In addition, Stellantis (STLA), Ford, and GM (GM) build their vehicles outside of U.S. markets. Production costs for automobiles made in Mexico, Canada, and China will rise due to tariffs.
The chances are high that the auto sector trade will freeze. Consumers will need to find other means of travel instead of replacing their vehicles. This benefits firms like Uber (UBER) and Lyft (LYFT).
Your Takeaway
Tariffs will hurt vehicle sales volumes, increase the sticker price, and send the industry to zero growth. Historically, tariffs will slow growth and hurt global trade. Brace for the deglobalization movement in the U.S. causing a recession in the coming months.
