Tariff Pause for a Month May Just be Delaying Inevitable Levies on GM and Ford

The White House on March 5 said that the 25% tariffs on vehicles imported into the US from Canada and Mexico that began a day earlier will be delayed for one month, provided those vehicles comply with the United States-Mexico-Canada Agreement. The change came after President Donald Trump spoke with the leaders of the Detroit Three, who argued that the tariffs hurt firms such as theirs but not those that export vehicles into the US from nations such as Japan, Germany, and South Korea. White House comments to the media on March 5 indicate that tariffs on all vehicle imports regardless of the country of origin will still commence on April 2, so we think 25% or reciprocal tariffs will start at that time.

What is not clear is whether the March 4 tariffs also come back, which would mean Detroit Three automakers and firms such as Toyota and Honda could be hit with a possible 50% tariff for Mexican and Canadian production. The March 4 tariffs, Trump says, are in response to the flow of fentanyl across the border and unauthorized immigration (and thus separate from the April 2 tariffs) so a deal on those issues could be reached before April 2. But even so, the 25% April 2 tariffs would still apply unless a USMCA carve-out is given.

As we said in our March 4 note, we are not changing the fair value estimates for our US automotive coverage at this time because it is not clear how long any tariffs might last. It would cost automakers and suppliers billions of dollars and time to move capacity, and it is not yet clear how much of the tariffs would be absorbed by automakers, suppliers, and dealers. If some sort of USMCA carve-out isn’t provided, the 25% April 2 tariffs could erase most of GM’s and Ford’s annual profit, by our estimate. We hope a deal is reached in some form to at least spare the North American trade zone for autos and preserve American automakers’ profits.