The team at Capital Economics came out with a note this morning describing some of the implications of the new auto tariffs plan Trump set into motion Wednesday evening.
They state the economies of Mexico, Slovakia, and Korea have the highest exposure to the tariffs, with up to 1.6% of gross domestic product at stake. Canada, Japan, and Hungary are the next most exposed countries in terms of auto exports as a share of GDP.
However, tariffs won’t halt foreign auto imports to the US completely. The economists cite three reasons for this: US production won’t be able to ramp up quickly enough to offset foreign vehicles, demand for some auto imports (luxury cars, for example) likely won’t change, and some low-cost exporters will still see cost advantages despite 25% tariffs.
The direct effects of tariffs on inflation will likely be limited, the economists said, adding just 0.2% to PCE inflation. However, Americans should expect some knock-on price effects on US-made cars, used cars, auto repairs, and insurance, similar to the disruptions during the pandemic.
