A Look at Trump’s Tariff Plan to Revive the US Auto Industry

Tariffs are a component in the toolkit Trump is using to achieve his goal of restoring domestic manufacturing, experts say.

Illustration by The Epoch Times, Shutterstock, Getty Images

​​The U.S. trade deficit reached a record high of more than $1.2 trillion in 2024. Automobiles and parts accounted for nearly a quarter of that.

In a bid to reverse the trade imbalance, President Donald Trump in February introduced a plan to impose reciprocal tariffs to “level the playing field” on trade and address what his administration called unfair trade practices imposed by other countries.

The tariffs are set to go into effect on April 2, after officials determine the individual tariff rate for each country.

Trump has repeatedly highlighted the automobile industry as a potential sector for tariffs.

Automakers in the United States have undergone a rollercoaster ride since Trump announced a universal 25 percent tariff on Canadian and Mexican imports in February.

Ultimately, the auto industry obtained a one-month exemption after the big three automakers—Stellantis, Ford, and General Motors—spoke to Trump over the phone. However, this reprieve won’t shelter them from the impending reciprocal tariffs.

When announcing the exemption, White House press secretary Karoline Leavitt said the president expected automakers to start moving production to the United States.

“He told them that they should get on it, start investing, start moving, shift production here to the United States of America, where they will pay no tariff,” she said on March 5. “That’s the ultimate goal.”

How Did the US Get Here?

At the heart of the United States’ chronic trade deficit are countless businesses that have moved manufacturing outside the United States because of high labor costs in the country, said Yao-Yuan Yeh, professor of international studies at the University of St. Thomas in Houston.

When overseas businesses ship manufactured goods to sell in the United States, such imports usually incur a net trade deficit because the value of the goods bought will far exceed those sold.

Take the example of the auto industry.

A truck transports new vehicles in Richmond, Calif., on March 4, 2025. U.S. tariffs on imports from Mexico, China, and Canada took effect the same day. Justin Sullivan/Getty Images

Over the years, the sector has arranged its supply chain to take advantage of cheaper resources in other countries. According to the Canadian Vehicle Manufacturers’ Association, auto parts may cross national borders as many as eight times before final assembly.

As a result, the imbalance between domestic and foreign investments shows up in the trade deficit tallies.

In 2024, automobiles and auto parts contributed $274 billion to the total U.S. trade deficit.

Nearly half of the negative balance in auto industry trade is from Mexico ($117 billion), which is followed by Japan ($50 billion) and South Korea ($43 billion). China ranked sixth in terms of its auto industry trade surplus with the United States at $9 billion, while Canada ranked 11th at $2 billion.

Some economists say the trade deficit is a good thing. In their view, it reflects a strong economy and robust spending. In addition, if the United States reduces the negative trade balance, it may slow down the growth of the global economy.

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Yeh said the perception of how the world should develop matters. From a globalization standpoint, the free market is quite developed. Therefore, outsourcing production to countries with cheap labor is a matter of high efficiency and divides roles and responsibilities among countries.

In the 1990s, the idea of businesses capitalizing on global resources drove the United States to push for the establishment of the World Trade Organization and sign free trade agreements, including the North American Free Trade Agreement (NAFTA).

However, Yeh told The Epoch Times that for people holding manufacturing jobs, the trade deficit is directly related to losing employment to people overseas, causing a “huge loss to the vast majority of workers in most developed countries.”

That’s why Trump’s tariffs found an ally in the United Automobile Workers (UAW) labor union.

The industry has lost 90,000 manufacturing facilities in the United States in the past three decades because of unbalanced trade with North American neighbors, UAW President Shawn Fain said during a March 9 interview on ABC.

Since 1994, the first year of NAFTA, Mexico’s annual car production has increased from 1.1 million units to nearly 4 million units last year. Last year, it exported about 3 million cars, or 80 percent of its production, to the United States.

“Tariffs are an attempt to stop the bleeding, from the hemorrhaging, of jobs in America for the last 33 years,” Fain said. “Tariffs aren’t the end solution. But they are a huge factor in fixing this problem.”

Trump’s End Game

The one-month tariff reprieve the White House granted automakers won’t be enough for them to drastically alter their supply chain.

However, they could use the time to develop a credible plan to increase domestic manufacturing, said William Lee, chief economist at the Milken Institute, a California-based economic think tank.

He said automakers could negotiate to pay a tariff on net cross-border transactions that result from multiple imports and exports or get extended or permanent tariff relief if they expand domestic production.

Lee says increasing domestic manufacturing is the primary objective of the White House, whether the goal is achieved by moving foreign production back home or expanding domestic production.

Cans of freshly canned beer move along an assembly line at The Can Van headquarters in Sacramento, Calif., on Feb. 19, 2025. Craft brewers are bracing for a 25 percent tariff on aluminum imports, set to take effect March 12 under President Donald Trump, which could raise prices on canned beer and soft drinks. Justin Sullivan/Getty Images

Tariffs are a component of Trump’s three-pronged plan to grow the U.S. economy, Lee said.

“Reduce the size of government, therefore lower taxes,” he told The Epoch Times, adding that the first component also helps move labor into the private sector.

“Number two, reduce regulation and use tariffs as an incentive to produce in the U.S. instead of abroad,” he said.

“At the same time, protect domestic producers,” Lee said about the use of tariffs in leveling the playing field by increasing the prices of foreign goods.

Yeh said Trump’s end game with tariffs is to give the United States a more advantageous position in the world and make America more self-sufficient. Given the limit of four years, Yeh said it is more realistic for Trump to set the direction and build momentum.

“Tariffs are a tool to open doors to negotiations,” Yeh said. “The purpose is to get more investments in the United States or increase foreign purchases of American goods.”

There have been some early signs of momentum, with companies investing more in the United States to avoid tariffs.

After Trump took office, Stellantis, a multinational automaker that owns Chrysler and other brands, confirmed plans to reopen its assembly plant in Belvidere, Illinois, and build its updated midsize SUV model in Detroit, a production line the company previously planned to move to Canada.

Nissan’s CEO has also discussed moving production out of Mexico.

Earlier this month, Honda said it plans to produce its updated sedan model in Indiana instead of Mexico.

From the White House on March 24, Hyundai announced a $20 billion investment in U.S.-based manufacturing, including a $5.8 billion new steel plant in Louisiana.

“This investment is a clear demonstration that tariffs very strongly work,” Trump said, adding that he will be making more announcements in a few days, including regarding duties on cars.