Will Trump’s Auto Tariffs Bring Vehicle Manufacturing Back to the US?

Automakers outside the U.S. will see increased tariffs designed to move more manufacturing stateside, but the policy’s durability may determine if it will have the desired shake-up in production.

President Donald Trump announced a new 25% import tax on foreign-made cars and parts on Wednesday. Trump said that the tariff will be implemented on April 2 and will be permanent.

The tariffs are aimed at encouraging manufacturers to build their cars and parts in America rather than overseas. Currently, most large U.S. automakers have their production spread across the U.S., Mexico, and Canada largely due to previous free trade agreements between the three countries.

Indeed, it’s nearly impossible to tell where a car is built based on the brand name alone. Ford (F) builds Bronco SUVs and several other models in Mexico, Chevy builds Silverado pickups and other vehicles in Canada, German brand BMW builds several models in the U.S., as do Japanese-owned Honda (HMC) and Toyota (TM), and Korea’s Hyundai.

It’s possible that automakers could move more production to the U.S. in response to the tariffs. General Motors (GM) and Ford may look to shift more production to their home country, where they have some excess capacity, analysts at UBS said in a commentary. However, it would take a long time to retool the factories.

“This also may come with other considerations, including, would the same policies be in place for beyond this administration,” Joseph Spak, an analyst at UBS, wrote in a commentary. 

Many companies may delay making decisions on moving production as they wait to see whether the latest tariffs really are permanent or whether they’re just a negotiating tactic to extract concessions from other countries, Adams said.

Hyundai earlier this week committed to investing $21 billion in the U.S. over the next few years to expand production and pursue new technologies.

The auto tariffs are the latest salvo in Trump’s expanding trade war, coming on the heels of 25% tariffs on products from Canada and Mexico, 25% tariffs on steel and aluminum, and 20% tariffs on products from China. Still more tariffs are coming April 2, when Trump said he plans to raise tariffs on countries with their own tariffs on U.S. products.