Auto stocks sputter as US slaps 25% tariff on cars

What’s going on here?

On Thursday, the US president said on his social media platform that he would impose 25% tariffs on all auto imports, beginning next week – a move that could sideswipe over $400 billion worth of goods, mostly from Mexico and the European Union. And he said there'd be exemptions, no wiggle room: this one’s meant to stick.

What does this mean?

It’s a big shakeup for global trade, for a start. Canada, the EU, and Japan are reportedly already weighing their next moves, and that probably means retaliatory tariffs. But the US isn’t likely to take its foot off the pedal – in addition to the import tariffs, the White House has floated the idea of tax breaks for US-made cars. The push to reshape US trade comes at a tricky time. The world's biggest economy’s been sending mixed signals – the job market has so far shown remarkable resilience, but US consumers, businesses, and investors are seeing things weaken, and they're anxious about it. The Federal Reserve has concerns too: the new taxes are likely to file a fresh run of price increases, and might even push the US into a stagflationary cycle – the dreaded combination of slow economic growth and fast inflation.

Why should you care?

For markets: Things could get messy.

Global markets are already on edge as trade partners consider hitting back. Shares of automakers around the world took a tumble on Thursday. And their Detroit-based peers weren't faring much better. That's not entirely surprising either: cars go places, their sales cross borders, and tariffs are typically met with counter-tariffs.

The bigger picture: That new trade war smell.

With the US slapping on these hefty tariffs, international trade agreements are in flux. If more countries start retaliating, we could see higher overall tariff rates and a more fragmented global economy. The big question now is whether this will strengthen the US economy as the US president believes, or set off a chain reaction of global slowdowns.

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