Trump Auto Tariffs, Threats on Allies Intensify Global Trade War
President Donald Trump signed a proclamation to implement a 25% tariff on auto imports and pledged harsher punishment on the EU and Canada if they join forces against the US, expanding a trade war and triggering threats of retaliation.
“What we’re going to be doing is a 25% tariff on all cars that are not made in the United States,” Trump said at the White House on Wednesday as he pushed ahead with a program seeking to bring more manufacturing jobs to the US.
Hours later, Trump suggested further tariffs would be imposed on the European Union and Canada if they worked together “to do economic harm” to the US. (…)
The auto tariffs will come into effect at 12:01 a.m. Washington time on April 3, initially targeting fully assembled vehicles. By May 3, the scope will expand to include major automobile parts like engines, transmissions, powertrain components, and electrical systems, with the potential to broaden further as necessary, according to the proclamation. (…)
Trump cast the tariffs as “permanent” and said he was not interested in negotiating any exceptions. The tariffs will be on top of levies already in place, White House Staff Secretary Will Scharf said, and the administration projects that the tariffs would result in $100 billion of new annual revenue to the US. (…)
In a fact sheet about the auto tariffs, the White House said importers whose vehicles were covered by USMCA, the trade agreement negotiated in Trump’s first term with Canada and Mexico, would be given the opportunity to certify their US and that the 25% levy will only apply to the value of their non-US content.
A White House official, discussing the tariffs on the condition of anonymity, said the administration would develop a plan to deal with parts that cross the border multiple times. (…)
Autos Drive America, which lobbies for carmakers based outside the US including Toyota and BMW AG, warned the new levies will do the opposite of what Trump wants.
“The tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers and fewer manufacturing jobs in the US,” Jennifer Safavian, the group’s president, said in a statement. (…)
Tariffs will likely raise prices of foreign-made cars, but even US-made vehicles would see price increases if supplies and parts are hit by levies or if supply chains are cut off from manufacturing in lower-cost countries.
US car and light truck imports were valued last year at more than $240 billion. (…)
- Asked if there was anything carmakers could do to have the tariffs removed, Trump replied: “This is permanent, 100 per cent.”
- Almost half of vehicles sold in the US are imported and cars assembled in the US contain nearly 60 per cent foreign-sourced parts, according to Bernstein analyst Daniel Roeska.
- European manufacturers export up to 60 per cent of the vehicles they make in the US, according to Acea.
- The levies threaten to upend the European auto industry’s reliance on exports to the lucrative US market. German carmakers are most at risk as they send more vehicles to the US than to any other country, including many of their higher-margin combustion-engine models like Porsche’s 911 sports car and Mercedes’ S-Class sedan. Most German automakers operate factories in the US where they produce cars both for local buyers and export.
- The tariffs could be a devastating blow to Mexico’s economy, where 1mn people are directly employed in a sector that accounts for about 4 per cent of GDP.
- Japan sent $40bn worth of cars to the US in 2024, representing 28.3 per cent of its overall exports to the US.
- “The revenues we’re going to use to give the largest tax cut in American history,” a US official said. “Tariffs equal tax cuts.”
- The president reiterated a campaign pledge to juice auto demand, saying that he was working with House Speaker Mike Johnson to pass a policy that would allow consumers to deduct car interest payments from their income taxes for American-made cars.
- Used cars? Higher new car prices are likely to lead to higher used car prices.
Drill, Baby, Drill
From the Dallas Fed Energy survey:
- What WTI oil price does your firm need to profitably drill a new well?
For the entire sample, firms need $65 per barrel on average to profitably drill, higher than the $64-per-barrel price when this question was asked in last year’s first-quarter survey. Across regions, average breakeven prices to profitably drill range from $61 to $70 per barrel. Breakeven prices in the Permian Basin average $65 per barrel, unchanged from last year.
Large firms (with crude oil production of 10,000 barrels per day or more as of fourth quarter 2024) require a $61-per-barrel price to profitably drill, based on the average of company responses. That compared with $66 for small firms (fewer than 10,000 barrels per day).
- I have never felt more uncertainty about our business in my entire 40-plus-year career.
- Oil prices have decreased while operating costs have continued to increase. To stimulate new activity, oil prices need to be in the $75-$80 per barrel range. Natural gas take-away in the Permian Basin has not improved for any of my properties, and I am still getting paid slightly negative to barely positive prices for natural gas. Last month I was paid 29 cents per million cubic feet. I feel very negative about the short-term outlook for the oil and gas business.
- In a strange twist to the administration’s hope for more domestic oil and gas production, higher steel tariffs may result in fewer wells completed due to higher completion costs, and, in particular, the cost of oil country tubular goods. The margins are thin enough for many wells, and this will likely result in downward pressure on total wells brought online.
- The key word to describe 2025 so far is “uncertainty” and as a public company, our investors hate uncertainty. This has led to a marked increase in the implied cost of capital of our business, with public energy stocks down significantly more than oil prices over the last two months. This uncertainty is being caused by the conflicting messages coming from the new administration. There cannot be “U.S. energy dominance” and $50 per barrel oil; those two statements are contradictory. At $50-per-barrel oil, we will see U.S. oil production start to decline immediately and likely significantly (1 million barrels per day plus within a couple quarters). This is not “energy dominance.” The U.S. oil cost curve is in a different place than it was five years ago; $70 per barrel is the new $50 per barrel.
- The administration’s chaos is a disaster for the commodity markets. “Drill, baby, drill” is nothing short of a myth and populist rallying cry. Tariff policy is impossible for us to predict and doesn’t have a clear goal. We want more stability.
- The 2025 steel is already purchased; tariffs are most likely to impact 2026 investment decisions.
- The administration’s tariffs immediately increased the cost of our casing and tubing by 25 percent even though inventory costs our pipe brokers less. U.S. tubular manufacturers immediately raised their prices to reflect the anticipated tariffs on steel. The threat of $50 oil prices by the administration has caused our firm to reduce its 2025 and 2026 capital expenditures. “Drill, baby, drill” does not work with $50 per barrel oil. Rigs will get dropped, employment in the oil industry will decrease, and U.S. oil production will decline as it did during COVID-19.
- Drilling projects are increasing from outside sources. Natural gas is very positive.
- The rate of accomplishment of the administration’s policy agenda will impact prices for natural gas in a favorable way. Killing the climate change policies and instigating LNG exports, along with the increase in manufacturing and artificial intelligence demands, will increase natural gas consumption. Weather-related demand was higher this year, and that increased the draw down in natural gas storage.
Good for inflation, not so good for oilmen:
Trump Says He Could Cut China Tariffs to Secure TikTok Deal
President Donald Trump said he would consider lowering tariff rates imposed on China to secure Beijing’s support for a sale of the US operations of ByteDance Ltd.’s social video platform TikTok to an American company.
“Every point in tariffs is worth more than TikTok,” Trump told reporters Wednesday in the Oval Office. He suggested that “in order to get China” to agree to a sale, “maybe I’d give them a reduction in tariffs.” (…)
Trump, who once sought to ban TikTok himself, has become a cheerleader for the popular video-sharing app, which he credits with helping his 2024 presidential campaign bolster outreach to younger voters.
CONSUMER WATCH
- Bloomberg’s in-house consumer spending metric, compiled from data tracking upwards of 20 million shoppers, in turn suffered “a sharp pullback” during that period [February]. (ADG)
- Penny pinching is in. Consumers are slumming it en masse these days, as Dollar General CEO Todd J. Vasos relayed on Thursday’s earnings call that “trade-down” among both middle- and upper-income consumers “appears to be accelerating.” (ADG)
Cushion or Pushin’ Considerations for the Pass-through of Tariffs into Consumer Price Inflation
(…) Our models point to a 0.6 percentage point increase in the year-over-year rate of consumer price inflation based on the tariffs implemented thus far, but we think this is an upper bound. Aside from explicit absorption mechanisms, the staggered implementation of tariffs and the varied timing of firms’ responses means the effects of tariffs are likely to ripple through pricing over the next year or two rather than come all at once. Ultimately, we see core PCE inflation remaining near 2.8% this year—0.4 percentage points above our pre-tariff baseline—and subsiding only gradually through 2026 to remain above the Fed’s target. (…)
Upside Surprise in Durables Looks More Rebound than Recovery
(…) Despite the Bloomberg consensus of 59 forecasters looking for a 1% drop in orders, total orders rose 0.9% with some modest upward revisions to the previous month of data as well. This better-than-expected report can be mostly traced to aircraft orders specifically. Orders for defense aircraft popped 9.3%, and nondefense aircraft orders were down ‘only’ 5%. Separately released Boeing data suggested more downside risk from aircraft and point to strike effects still working their way through the data.
While some of the gain may signal a front-running of tariffs by businesses, we expect the strength more so reflects normal volatility and a rebound after some weak data. Consider orders for autos for instance, which bounced 4% in February after four consecutive monthly declines. The 2% gain in electrical equipment and 0.9% gain in fabricated metals orders also followed declines in January. Further, core capital goods orders (excluding defense & aircraft) fell 0.3% last month, signaling a bit of a weaker trend in underlying capital investment demand than implied by the headline growth rate. (…)
On a three-month annualized basis, core capital goods shipments are up 2.9%, which marks the fastest growth rate since 2020. (…)
Was this front loading in Nov-Jan, slumping starting in Feb?
Data: Census Bureau; Chart: Axios Visuals
From S&P Global’s flash March PMI:
Manufacturing output meanwhile fell into decline, contrasting sharply with the gains seen in the first two months of the year (February’s rise in output was the largest recorded since May 2022). Factories reported fewer instances of output having been buoyed by the front-running of tariffs, and new orders growth came close to stalling in the goods-producing sector.
AMERICAN EXCEPTIONALISM
A rather interesting chart from Bridgewater, showing that U.S. GDP growth has underperformed global GDP while U.S. profits outperformed. Bridgewater explains:
US companies need global cooperation. American corporations dominate global profits relative to the US economy’s share of global GDP, and they need the rules in the rest of the world to allow them to do that.
US companies’ global profit share is discounted to grow from here, which will be increasingly difficult in a less-globalized world, particularly given the risk that countries facing tariffs could focus their retaliation toward multinational US companies operating in their economies.
U.S. tariffs are likely to increase relative input costs for American corporations, at least for a year or two. The popularity of American brands across the world seems to be going the same way that the Trump administration is cultivating alliances and friendship.