President Donald Trump revealed on April 2, 2025 a broad tariff plan to reformulate US trade and boost the national industry.
Framing the announcement as the “Day of Liberation”, proposed a 10% tariff on practically all imports, with higher rates for the main commercial partners, including 34% for Chinese products and 20% for those of the European Union. As of April 3, a 25% tariff on all foreign manufacturing cars and auto parts will enter into force, according to him, the US manufacturing industry will revitalize and restructure the country’s commercial agenda.
But the fanfare that surrounds the announcement hides a much larger bet. What is really at stake is trust: the historical reputation of the United States as a stable and predictable destination for global investment. And once that trust is lost, it is incredibly difficult to recover it.
The strategy is presented as a solid defense of American manufacturing and the middle class. But direct foreign investment (when foreign companies build factories or expand their operations in the United States) depends on more than the opportunity. It depends on certainty.
If global investors begin to worry about an abrupt change in American commercial policy, they could relocate their capital to other places. Therefore, the aggressive Tariff Strategy of the Administration runs the risk of undermining the trust that has long made the United States a main destination for global capital.
Cars rates as an example
In no sector is this more visible risk than in the automotive industry.
In 2023 alone, the United States attracted more than 148,000 million dollars in foreign direct investment, with almost 42.9 billion dollars linked to manufacturing, including the automotive sector. In recent decades, important world car manufacturers such as Toyota, BMW and Hyundai have established extensive plants in states such as Alabama, Ohio and Kentucky.
These facilities, many of which have experienced an important reinvestment and expansion in recent years, especially in response to change to electric vehicles, use thousands of Americans and contribute significantly to local economies.
Trump’s tariff initiative seeks that car manufacturers manufacture more vehicles in US territory to compensate for the increase in import costs. It is a strategy with precedents. During his first term, the threat of automotive tariffs, together with the existing plans, promoted the investment of 1.6 billion dollars of Toyota in a plant in North Carolina and the expansion of Volkswagen’s operations in Tennessee is not unreasonable to imagine that Honda or Mercedes follow the example with new factories in Indiana or Texas.
But here is the trick: “made in the United States” does not always mean “made for less.” American automotive plants often face productivity and efficiency gaps compared to their foreign competitors. Labor costs are higher. The assembly lines move more slowly, partly due to stricter labor protections, lower automation and obsolete infrastructure. And manufacturers of US cars such as Ford and GM still depend largely on global supply chains. Even for assembled vehicles in the United States, about 40% of the pieces, such as Canada’s engines and Mexican wiring harnesses, are imported.
A man on a desk holds a document
President Donald Trump in the Oval Office on March 26, 2025, when he announced that 25% tariffs would impose all cars manufactured abroad.
When these pieces are taxed, production costs rise. Moody’s estimates that trucks such as Ford F-150 and Chevy Silverado could cost between $ 2,000 and $ 3,000 more as a result. Goldman Sachs projects price increases up to $ 15,000, depending on the vehicle. Automobile manufacturers then face a dilemma: raise prices and risk losing customers or absorb costs and reduce their margins.
A domino effect throughout the economy
Tariffs can protect an industry, but their chain effects have a much greater reach. Costs increase for other sectors that depend on imported supplies, slow down production by making more expensive and reducing the efficiency of supply chains, reduce gain margins and make decisions make decisions for companies and consumers.
Factories represent multimillion -dollar investments that take years to recover. Contradictory signals, as the president declares the “permanent” tariffs at one time and negotiable to the next, create a climate of uncertainty. This makes companies more reluctant to build, hire and expand.
And investors are watching closely. If building in the EU becomes more expensive and less predictable, is it still a long -term intelligent bet? When a company decides where to build its next battery or chips plant, the volatility of American politics can be a decisive factor.
The consequences could manifest soon. Goldman Sachs has already reduced its growth forecast of American GDP by 2025 to 1.7%, compared to the previous 2.2%, due to the risks of the administration’s commercial policy. Consumers, who still deal with inflation and high interest rates, could begin to delay important purchases, especially as tariffs further drive prices.
International consequences
The United States commercial partners do not stay with crossed arms. Canadian Prime Minister Mark Carney, affirms that his country “will counteract, with determination and strength.” The European Union is considering imposing tariffs on US technology companies. Japan, a long -standing ally, shows restlessness. If these countries redirect their investment to other countries, the United States could lose their competitive advantage for years.
And although approximately one million Americans work in the automotive industry, more than 150 million make up the country’s total workforce. When the tariffs increase the costs of inputs, they can trigger a chain reaction that harms retailers, slows jobs in the services sector and decelerates general economic growth.
Consumers will also notice. Higher prices involve lower sales, lower tax revenues and lower profits. All this weakens the economy at a time when family budgets are already under pressure.
History lessons
The United States has seen how commercial policy can influence investment decisions, but conversely. In the 1980s, Japanese automobile manufacturers responded to American import quotas not withdrawing them, but building plants in the United States. This response was possible thanks to the fact that policies were clear and negotiated, not abrupt or adversary.
Today, the story is different. Volatile and unilateral tariffs do not generate confidence, but erode it. And when trust erodes, so does the investment.
Yes, a factory in Indiana or Kentucky could reopen. But if that involves deterring billions of dollars in long -term investments, is it worth it?
Thus, although the president can celebrate on April 2 as the day of liberation, markets can see it as the turning point, when world confidence in the US economy began to falter seriously.
About the author:
*Bedassa Tadesse is a professor at Economics at Minnesota Duluth
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