Trump Tariffs Have Arrived

1. 25% Tariffs on Autos.

President Trump has announced 25% tariffs on all vehicles imported to the U.S., acting on a promise that could further pressure car and truck prices. A lot can change, but we want to be proactive in our thinking, given the environment. So, cars made up 6.6% of all US imports last year at $217b, with Mexico, Japan, and Korea among the top sources_[1]. The U.S. will start auto tariffs on April 3^rd, and they will be permanent. They would cover finished automobiles and automotive parts. Nearly half of the new passenger vehicles sold in the U.S. in 2024 were assembled outside of the U.S.^[2] The United Auto Workers’ president, Shawn Fain, called the 25% tariffs announced late Wednesday, “A major step in the right direction for autoworkers and blue-collar communities across the country.” The UAW represents about 150,000 U.S. hourly workers at factories owned by Ford (F), General Motors (GM), and Stellantis (STLA).

This is not the first time we have heard about tariffs on the auto industry from President Trump. Back in 2018, Trump floated the idea of auto tariffs and launched a section 232 investigation into whether auto imports pose a national-security risk. They found that “excessive” foreign auto imports weaken the domestic industrial base and could impair national security.^[3] The commerce department ultimately recommended tariffs as high as 25%, though they were never implemented.

2. Tariff Exposure.

Our exposure to these potential tariffs is limited to a few select names across various equity portfolios. For the names that are exposed, all have levers to mitigate the potential impacts of these tariffs. It is important to remember that companies have been diversifying their supply chains since the onset of the COVID-19 pandemic. Not only have companies been diversifying their supply chains, but they have also dealt with similar tariffs during Trump’s first term.

A good example of  a tariff-exposed company would be AutoZone Inc. (AZO). In the company’s most recent earnings call, they listed the actions that they plan on taking to offset the impact of tariffs, which include things like “vendor absorption, diversifying sourcing, taking pricing actions, or some combination of the three.” The company also stated that it won’t be the only company in the industry to take actions like this. It is to be expected that companies will not be taking a margin hit due to these tariffs, and ultimately, they will be passed on to the consumer.^[4] 

These proposed automotive tariffs also create opportunities for certain names. One name that is already seeing the benefit of the proposed tariffs is Tesla Inc. (TSLA). Tesla shares closed up slightly on March 27, meanwhile, its U.S. OEM competitors finished down anywhere from -3% to -7%. Although the company will be impacted somewhat by tariffs, it pales in comparison to the impact that other US OEMs could feel. Tesla sources 60-75% of its parts from the U.S., depending on the vehicle.^[5] As for assembly, 100% of the vehicles that Tesla sells in the U.S. are made in the U.S.^[6] No other automaker assembles 100% of its U.S. market vehicles within the country.

It is unknown whether any tariffs will be implemented. But if tariffs are implemented, companies will adapt as they always do. We focus on owning stocks that feature intellectual and fast-acting management teams that have dealt with these types of challenges before. There are always opportunities to be found when bumps in the road present themselves.

Chart 1: Price Increases Needed to Offset 25% Tariff Impact^[7]

3. Fixed Income’s Thoughts

In the near term, the introduction of tariffs is expected to erode profitability and compress operating margins for automakers. To counteract the tariff impact, automakers are likely to adopt tariff mitigation strategies, including cost-cutting measures such as relocating production to U.S.-based facilities where feasible alongside adjustments to production volumes.

While automakers may attempt to offset some of the tariff-related costs by passing them on to consumers, their ability to do so is constrained. Average vehicle transaction prices are already elevated at $46,000 per unit—reflecting a 28% increase from pre-pandemic levels—leaving limited room for further price hikes.^[8] From a credit rating perspective, the outlook appears negative, as profit margins are a key factor in agency assessments and often serve as a trigger for rating actions. Although rating agencies may delay immediate decisions until automakers outline their tariff mitigation strategies and revised profit forecasts, the likely outcome includes negative outlook revisions and, in some cases, potential downgrades.

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Sources:

^[1] Source: Bloomberg. As of March 27, 2025.

^[2] Source: S&P Global. As of March 4, 2025.

^[3] Source: Yahoo Finance. As of March 26, 2025.

_[4] Source: AutoZone Inc. Q2 2025 Earnings Call. As of March 4, 2025.

^[5] Source: Quartz. As of March 27, 2025.

^[6] Source: Yahoo Finance. As of March 26, 2025.

^[7] Source: Deutsche Bank. As of March 27, 2025.

^[8] Source: Credit Sights. As of March 27, 2025

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