As head of the Colorado Automobile Dealers Association, Matthew Groves listened to President Donald Trump’s tariff speech Wednesday and knew one thing for sure.
“Tariffs are going to be a topic for as long as Trump is in office,” Groves said. “I don’t know what they’ll look like, say, three, four, five, six months from now, but I’m betting that’s going to be something slightly different from what it is now.”
As for now, those started at midnight, when the U.S. was to start collecting the previously announced 25% tariff on all foreign-made cars and light-duty trucks.
On Wednesday, Trump announced a slew of new reciprocal tariffs that could push the price of many imported goods higher, including a 24% tax on Japanese imports, 25% for South Korea, and 20% on anything from the European Union. The new tariffs, which start April 5, won’t be added to automobiles or auto parts, or other items with existing tariffs, such as steel and aluminum.
The Trump administration’s new reciprocal tariffs have been anticipated for months. Whether they stick this time is unknown. Tariffs that went into effect in early March on goods from Mexico and Canada, were paused a few days later. That still left small businesses in Colorado flustered. Some tariffs were later dismissed, at least on items that met the U.S.-Mexico-Canada Agreement. Those, by the way, were not reintroduced Wednesday and Mexico and Canada were barely mentioned by Trump.
But Trump has talked about putting tariffs on the auto industry since February. Last week, an executive order said 25% tariffs would start this week, which covers nearly $600 billion worth of vehicles and auto parts, according to a Reuters analysis.
Colorado auto dealerships had big weekend
Car-shopping consumers who were paying attention headed to Colorado auto dealerships over the weekend to make a purchase. While the monthly sales data isn’t complete yet, Groves said, “This was an outstanding weekend for dealers. It’s all rooftop by rooftop data so I don’t want to be specific, but I would say it was generally 125% to 150% of a normal weekend.”
He doesn’t expect prices to immediately increase 25% overnight though he can’t rule that out.
That’s because not all automobiles from foreign manufacturers are made outside of the United States. Some have foreign parts but are assembled in the U.S. Dealers are having to make decisions on how to absorb the tax hikes on foreign-made cars and even different models or brands of vehicles. Toyota, for example, has several manufacturing plants in the U.S. and assembles Tundras and Sequoias in San Antonio, Texas.
Groves said that he’s heard that some local dealers plan to spread the cost of the tariffs across their inventory so one model isn’t disproportionately impacted. Others still have pre-tariff inventory so those cars won’t see any price changes.
But a 25% increase in prices overnight for new cars?
“It’s possible,” he said. “The dealer’s concern is to make this as bearable as possible to all of their consumers. Every dealer, every manufacturer is going to have a different way of doing that but all with the same goal of softening the impact of what could be a 25% increase per car.”
More tariffs as trade war continues
Tariffs are typically specific to a country and item. Last year, the Biden administration put a 100% tariff on electric vehicles imported from China to keep EV manufacturing in the U.S.
The new trade war has the Trump administration creating reciprocal tariffs of a minimum of 10% for all U.S. trade partners. Some countries with higher tariffs on U.S. imports will have much higher reciprocal tariffs. Chinese imports face a 34% tariff, which is about half of what the Trump administration calculated as China’s “tariffs charged to the U.S.A. including currency manipulation and trade barriers.” The New York Times reported that the calculation is based on the trade deficit with each country.
Tariffs can also take some time to work themselves into consumer prices so the impact isn’t known until months later, said Brian Lewandowski, executive director of the Business Research Division at the University of Colorado.
In a recent survey of business leaders, sentiment on the economy soured to the third lowest point in the 23 years of the Leeds Business Confidence Index. The other two times were at the start of the pandemic and also in the first quarter 2009 during the Great Recession. The top two reasons for the concern? “New administration” and “tariffs,” according to open-ended explanations by participants.
“They’re not something that takes place overnight. I think what’s tricky is what it does is (create) anticipation,” Lewandowski said. “If there’s anticipation of higher tariffs on foreign cars, that can have a more immediate effect because you’ve got people trying to beat the tariffs. The way we’ll be able to measure it is taking a look at things like the vehicle-use taxes in Colorado. Did we see a jump that happened in March or April?”
Lewandowski said that this is top of mind for local companies, which is also affected hiring and capital expenditures spending.
“Tariffs have also been on again and then off again, so that’s another reason why I don’t think it will necessarily be measurable real quickly,” he added.
But some participants did view the impact of policy changes as a positive, though that response rate fell to 8% for the second-quarter outlook, compared to 15.5% in the first quarter.
“We worry about tariffs being inflationary and causing higher consumer and business input prices,” Lewandowski said. “But it can also provide fairer competition for some of our Colorado-based companies. So that can be a positive.”
Gov. Jared Polis on Wednesday urged the Trump administration to focus on free trade. Colorado imported $17 billion and exported $10.5 billion in goods last year.
“These deeply damaging tariffs are sending the market in a downward spiral, hurting businesses, devastating manufacturing, and damaging our economy, which will lead to more inflation and recession fears,” Polis said in a statement. “I urge Colorado’s members of Congress on both sides of the aisle to reject these tariffs, which will raise the cost of groceries, housing, and much more for hardworking Coloradans.”