Are Tariffs a Boon or a Bust for U.S. Manufacturing? Analyzing Trump’s “Liberation Day” Tariffs 

On April 2, President Trump’s “Liberation Day” tariffs went into effect, quickly sparking retaliatory tariffs and causing sharp losses in the stock market. The initial tariffs imposed a 104% duty on parts from the People’s Republic of China, while parts from Taiwan (Republic of China) were subject to a 32% tariff. Japan and Vietnam, which supply key electronic components and wiring for various automakers, faced tariffs of 24% and 46%, respectively. 

However, the President followed up just days later, announcing a reduction in most tariffs to 10% on imports from most countries, while raising tariffs on Chinese imports to 125%. In addition, a 90-day pause in the implementation of stiffer ‘reciprocal tariffs’ took effect this week. It is important to note that this change in tariff percentages does not apply to the already in place 25% tariffs on steel and aluminum.  Additionally, the 25% tariffs on new vehicles and all auto parts imported to the U.S still are in effect.  

Estimating the Financial Impact 

We’ve calculated the potential impact of these tariffs on the acquisition costs of parts for car manufacturers and parts distributors in the U.S. Using the average of 13.5 replacement parts per estimate as a baseline, we estimate that the increase in per-estimate costs will range from $180 to $240. 

However, several factors could affect this estimate. First, the average number of parts per estimate is likely to decrease. As parts costs rise, more severe collisions may result in total losses, reducing the number of repairable parts per estimate, potentially shifting the average to around 12 to 12.5 parts per repairable estimate.  

Additionally, the weakening dollar could exacerbate the situation. As the U.S. dollar weakens against other currencies, overseas buyers may purchase more salvage vehicles, removing them from the domestic parts supply chain. This could drive up the cost of salvage parts, further increasing repair expenses.  

The Shift in Pricing Dynamics 

Furthermore, OEM parts produced in the U.S. and subject to price-matching programs may become more expensive, as manufacturers won’t need to discount their products as heavily when competing with Taiwanese aftermarket parts now subject to a 25% tariff. 

The Bigger Picture: Tariffs and U.S. Manufacturing 

The President has made it clear that the goal of these tariffs is to bring manufacturing back to the United States. However, building new manufacturing plants in the U.S. is a significant investment—an auto assembly plant can cost up to $2 billion and take 3 years to build. This timeline could extend through the end of the Trump administration, creating uncertainty about how the next administration will approach tariffs and U.S. manufacturing policy. 

Jim Farley, CEO of Ford, addressed the issue of shifting production to the U.S. during an investor call. He stated that Ford has no plans to relocate production and warned that long-term tariffs would be devastating to U.S. vehicle production, potentially leading to significant layoffs of assembly line workers. 

The Evolving Tariff Landscape 

The situation is fluid, with additional tariffs and retaliatory measures being implemented daily. As these changes unfold, we will continue to monitor inflationary trends in parts pricing and provide updates on this rapidly evolving environment.