President Donald Trump announced on Wednesday, March 26, that he would impose a 25% tariff on “all cars not made in the United States.” He also stressed that “there will be absolutely no tariff” on cars made within the country’s borders.
The new tariffs were formalized through a presidential order, which Trump signed in the Oval Office. According to White House adviser Will Scharf, the new measures concern “cars and light trucks that are made abroad” and come in addition to the already existing tariffs. Scharf argued that these tariffs will generate “over $100 billion” in annual revenue for the United States.
However, the details of the presidential order are not yet clear, as most cars are assembled from thousands of parts that come from various countries.
Turmoil
Trump’s announcement caused turmoil on Wall Street, with shares of General Motors down more than 4%, Stellantis down nearly 3% and Ford Motor down about 1% in after-hours trading.
On Monday, Trump had already warned that auto tariffs could take effect before April 2, the date his plan to impose “retaliatory tariffs” on countries that tax American products begins.
He has called April 2 “liberation day” and “the big day,” promising to impose tough protectionist measures against countries with hostile trade policies.
However, Trump and his aides have hinted in recent days that the tariffs may be less severe than initially announced.
On Friday, the US president said there would be “flexibility” in the tariffs, while on Tuesday he suggested they could be “more lenient than retaliatory.”
Treasury Secretary Scot Bessent said countries could negotiate with the US in advance to avoid new tariffs on April 2.
The end of globalization
Politics and markets as we know them are changing rapidly. The head of the US Council on Foreign Relations, in an article in Foreign Affairs, states clearly: “China has already reshaped the international system.”
“From 2009 to 2017, as the National Security Advisor for International Economic Affairs and the U.S. Trade Representative, I repeatedly warned my Chinese counterparts that the international environment that had enabled China’s success would disappear unless they modified their aggressive economic policies. Instead, they doubled down on their aggression. The U.S.-China relationship deteriorated because there was no reciprocity. Washington may have created the liberal, open international order, but China defined its next phase: protectionism, subsidies, restrictions on Foreign Direct Investment (FDI), and industrial policy.
To say that the U.S. must take back the reins to preserve the rules system it created is a misnomer.
China’s nationalist state capitalism dominates the international economic system.
Washington, having failed to persuade Beijing to change course or create an alternative trading bloc to compete with it, was left with one choice: The United States had to become more like China.
In the United States, the emerging state model combines neoliberalism at home and mercantilism abroad.
In China, by contrast, the reverse is true: mercantilism at home and neoliberalism abroad.
So what is Europe’s proposed course?
So far, the signals are not clear, despite the intense geopolitical noise overhead. Continuing a piecemeal approach, without an overall macroeconomic or military strategy, is far from ideal. Perhaps the changes required are much greater than most people realize.
