In the first months of the Trump administration, several economic policy changes have left many business owners bracing for impact, economists scratching their heads and consumers holding the proverbial bag.
April saw not only the implementation, but also walking back of tariffs on some of the United States’ major trading partners: Canada, Mexico and China.
“Mainstream economics really view this negatively, so it’s hard for me to articulate [the Trump administration’s] rationale for what they’re doing,” says William Craighead, Ph.D., director of the UCCS Economic Forum.
Craighead says that, in most cases, tariffs lead to a less efficient allocation of resources, making the U.S. economy less productive, which could ultimately lower our standard of living.
“They add to the cost of anything that’s imported or anything that’s produced in the United States using imported materials or components, and those higher costs ultimately get passed on to consumers. So, while it’s a tax that’s not directly collected from consumers, it’s one where consumers end up bearing most of the burden,” he says.
Tariffs 101
Many non-economists were introduced to the subject of tariffs from the hit movie Ferris Bueller’s Day Off, thanks in part to Ben Stein’s deadpan delivery and discussion of the 1930 Hawley-Smoot Tariff Act.
“In most of the 19th century, the U.S. didn’t have an income tax. We didn’t have programs like Social Security, and tariffs were an important revenue source for the federal government. They were set by Congress and [were] a matter of negotiation within Congress to set,” Craighead explains. “[Elected officials] would say ‘I want this particular industry in my district to be protected by tariffs and be protected from imported competition.’”
Just as we all learned from Ben Stein, the 1930 Hawley-Smoot Tariff Act enacted new tariffs as the Great Depression began. But that did not have the intended economic benefit, instead plunging the economy further into depression thanks largely to reciprocal tariffs international trading partners placed on the U.S. That led Congress to pass the Reciprocal Trade Agreement Act, giving the president the power to negotiate trade agreements.
“Since that time, until very recently, we’ve been on a path to more open trade relationships,” Craighead says.
Auto Industry
In addition to blanket tariffs on many trading partners, a specific 25% tariff targeting the automotive industry was levied in late March in an effort to bolster the U.S. automotive industry.
“I don’t think there’s a single automaker that isn’t affected by these tariffs,” says Joseph Yoon, a consumer insight analyst for Edmonds, an online automotive resource.
Trade deals including the North American Free Trade Agreement (NAFTA), which was approved in the early 1990s, led many domestic automakers to develop factories and production facilities in both Canada and Mexico. During the first Trump admission, NAFTA was updated to create a balanced and reciprocal trading environment across the North American continent with the United States-Mexico-Canada Agreement (USMCA).
“Even the most American vehicles you can think of have large portions of their cars that have parts from Canada or Mexico. Even if they have all of the final assembly done in the United States, there’s going to be major portions of the car that still have to be tariffed,” Yoon explains.
According to the White House, automobile importers under USMCA will be allowed to certify their stateside content and systems are implemented in a way that the 25% tariff will apply only to the value of their non-U.S. content. USMCA-compliant parts will remain exempt from tariffs until the Secretary of Commerce, along with U.S. Customs and Border Protection, can establish a process to apply tariffs to the non-U.S. content.
Domestic vs. Import
Kevin Shaughnessy, president and CEO of Phil Long Dealerships, which owns 17 dealerships across Colorado, says that many of the automotive tariff policy announcements and implementations remain unclear.
“Our domestic brands import and our import brands are built domestically. They’re all impacted one way or the other. Nothing happens in a vacuum; the world is never standing still. So, whenever there’s an action, there’s a corresponding response and every manufacturer is sorting out their response,” Shaughnessy says.
South Korean brands such as Hyundai and Kia have manufacturing facilities in Georgia; Japanese brands Subaru and Toyota have facilities in Indiana and Texas, respectively; and German automaker Mercedes Benz operates facilities in Alabama. The “Big Three” American automakers, Ford, General Motors and Stellantis (including Jeep, Dodge, Ram and Chrysler) operate facilities in the U.S. as well as in Canada and Mexico.
“Let’s say a vehicle is manufactured in Dearborn, Michigan, but that’s right across the border from Windsor, Canada. [Ford] has an assembly plant in Windsor where they assemble the chassis of the vehicle, and then the chassis is delivered to Dearborn for final assembly. Is that an import? Is the chassis tariffed? What’s the value of the chassis and how do you determine what that tariff is?” Shaughnessy says.
Business Impact
Many auto industry analysts are also holding their collective breath for how automakers will navigate the impacts from the tariffs.
“[Manufacturers and dealers] know that they can’t … just put a Sharpie across the window sticker and then add 25% on top of whatever they’re selling at the moment,” Yoon says.
To address the uncertainty of the tariffs’ full impact, many automakers have announced strategies to incentivize sales and mitigate the impact on consumers. Ford recently announced that, in April and May, it would offer employee pricing for most newly purchased Fords and Lincolns.
“It’s below the invoice price that we pay,” Shaughnessy says. “What Ford does, when we sell a vehicle to their employees, they give us a commission back that makes us whole and gives us a small profit on top of that. I think it’s an amazing program, but it also gives me a little concern because it shows me the level of concern that Ford Motor Co. has about the potential impacts of these tariffs.”
Stellantis has announced similar incentives. Meanwhile, General Motors isn’t planning on employee pricing, but has announced plans to develop other ways to mitigate prices. Mercedes announced that it’s locking in pricing for 2025 model years so that customers aren’t hit with increased prices if ordering a new vehicle and have to wait longer due to the tariffs. Other foreign-based automakers such as Hyundai are locking in their 2025 prices through at least May.
Shaughnessy says that this is the largest response to an economic event that he’s seen from automakers since the days after the Sept. 11, 2001, terrorist attacks, when they introduced 0% financing for 60 months to jumpstart the economy.
“It worked so well that October of 2001 is maybe one of the very best months in the history of the car industry because consumers responded to that fantastic offer,” Shaughnessy says.
Uncertain Future
Shaughnessy says that the consumer concerns after the auto industry tariffs were announced did lead to increased foot traffic across Phil Long’s 17 Colorado sales lots.
“March [2025] was the highest-volume sales month in the 80-year history of our company,” he says, and that the early weeks of April continued that increased pacing.
“I would like to pretend we just got really great at our jobs and we got a lot smarter in March, but we were probably the same guys that were here last March,” he says.
Shaughnessy says that Phil Long has also prepared for the tariffs’ impact by planning ahead to help protect their customers — ordering double the supply of parts than they normally would to lock in lower prices but also keeping more new cars in their inventory than they would normally. The traditional number of new cars in Phil Long’s inventory hovers around 1,000 vehicles at a given time. Now they have closer to 3,100 new vehicles for sale.
“We’ve got about a 90-day supply of new cars sitting on the ground right now that are all pre-tariff that way, we could probably get through the end of June with the inventory we have on the ground right now,” Shaughnessy says.
New domestic models impacted by the recently implemented tariffs are projected to hit dealership lots starting around the end of May, but it may take foreign models manufactured in Asia or Europe two to three months, if not longer, to arrive.
“If I was thinking about buying a car later in the year, I would probably get it now rather than later. That’s [also] driving a lot of business,” he says.
