Barclays is sounding alarms over the looming potential fallout from President Trump’s aggressive stance on tariffs. The bank’s analysts foresee a drastic uptick in auto tariffs, predicting a rise to 40% or even 50% on imports, particularly from Europe, starting as soon as April 2. This isn’t just a small bump in the road for consumers and manufacturers alike—this is a seismic shift in the global auto industry. Nearly half of all vehicles sold in the U.S. could soon face these crippling tariffs, and the ripple effects will be felt from the assembly lines to the dealerships.
Right now, the 25% tariff already in place on imported cars is bad enough, but if the new duties are as high as Barclays anticipates, we could be looking at a much worse situation for everyone involved. As it stands, imports of finished automobiles and parts to the U.S. already total nearly $275 billion in 2024—about 0.9% of U.S. GDP. That’s a massive chunk of the economy getting sucked out of the system, all in the name of reshuffling trade deals and putting pressure on foreign countries. But if these duties rise to 40% or 50%, the economic impact will skyrocket.
The biggest issue here is the “just pay it” cost. The 25% tariff is already squeezing the U.S. GDP by about 23 basis points, and that doesn’t even account for the reciprocal tariffs waiting to be imposed by the EU, Canada, and others. That means the true cost could quickly spiral well past anything we’ve seen before. Even with a “just pay it” mentality, American consumers will feel the pinch—not just from higher prices at the dealership, but also from higher costs in other sectors that rely on those imports.
For the countries most exposed to these tariffs, the pain is just beginning. Mexico and South Korea stand to lose the most in terms of GDP impact. Mexico’s auto exports to the U.S. alone topped $95 billion in 2024, representing 5% of their GDP. South Korea, with its rising auto exports to the U.S., is seeing over $35 billion in sales, or about 2% of its GDP. Both countries could face devastating economic losses as tariffs drive up prices and force manufacturers to adjust to new market conditions.
The U.S., on the other hand, faces potential retaliation. The EU and Canada could hit back hard, especially with reciprocal tariffs on American-made vehicles. In fact, Canada has a unique advantage here—they could hit back just as hard as the U.S. with a fairly even trade relationship in finished cars. The EU, for its part, may target U.S. exports like SUVs, particularly those made by U.S. manufacturers for German automakers like BMW and Mercedes. If the EU decides to go all in on tariffs, it could force U.S. manufacturers to move production back to Europe, hurting U.S. jobs in the process.
As Peter Schiff points out, there’s a glaring contradiction at the heart of these tariffs. If the tariffs cause too much harm to the U.S. economy, they risk becoming a toothless negotiating tool. Schiff’s argument is that if the U.S. faces significant damage from these measures, foreign governments may be less inclined to negotiate or make concessions—because they know the U.S. will be hurting too much to sustain them. A negotiation tactic that backfires doesn’t hold the same leverage.
As if that weren’t enough, the wider landscape remains volatile. The 232 tariffs on copper, pharmaceuticals, and chips, as well as the ongoing Section 301 review on China, are all still in play. No one really knows how much more disruption is coming, but one thing is clear: the U.S. economy might be in for a rough ride.
Sources:
https://x.com/wallstengine/status/1905176251402457146
https://x.com/Brad_Setser/status/1905015449542156516
https://x.com/PeterSchiff/status/1904872653501939749
https://www.marketwatch.com/articles/gm-stock-price-auto-tariffs-ef754d2d?mod=home_ln