From steel to engines to whole cars, tariffs are shifting the playing field for automakers. Our credit analysis suggests there are no winners in this war: consumers should expect higher sticker prices, companies lower earnings and investors more volatility.

As trade tensions build, automakers around the world are finding themselves in the cross hairs. US tariffs have already raised the costs of steel and other materials. Now the Trump administration is considering tariffs on imported cars and parts, which the president has suggested could be as high as 25%.

Increased trade barriers are likely to raise financing costs for companies and prices for consumers, with each new round of tariffs likely to push equities lower and the US dollar higher. As global central banks, led by the Federal Reserve, continue to drain the excess liquidity they spent the past decade pumping into the global system, trade-driven US-dollar strength may worsen market volatility and put more pressure on asset prices.

Disrupting the Global Supply Chain

In the automotive industry, tariffs matter because the auto supply chain is global. Parts are sourced from around the world and move across borders repeatedly, making tariffs a hindrance in both directions. For instance, a company that makes cars in a US factory still must import labor-intensive parts from Mexico, such as engine blocks and the wiring harnesses—a spaghetti-like mass of cables that runs throughout a vehicle.

After paying a US tariff on those parts, companies that then export the finished cars can be hit yet again by retaliatory tariffs by US trading partners. For instance, China recently responded to a raft of US tariffs on Chinese goods by raising its levy on US-made cars from 25% to 40% (while reducing tariffs on cars imported from elsewhere). That means automakers who export to China from the US would get hit coming and going.