Noted economist honored by Trump warns about cost of his tariffs
President Trump’s Auto Tariffs Could Increase Vehicle Costs by $4,711, Warns Economist
By JOSH BOAK, Associated Press
WASHINGTON (AP) — In a recent analysis, renowned economist Arthur Laffer cautioned that President Donald Trump’s proposed 25% tariffs on auto imports could potentially add $4,711 to the cost of a vehicle. Laffer, who was awarded the Presidential Medal of Freedom by Trump in 2019 for his contributions to economics, highlighted that these tariffs might hinder the competitiveness of U.S. automakers against their foreign counterparts.
Laffer’s 21-page analysis, obtained by The Associated Press, emphasizes the importance of preserving the supply chain rules with Canada and Mexico from Trump’s own USMCA trade pact to benefit the auto industry.
The White House has granted temporary exemptions for auto and parts imports under the USMCA from the tariffs starting on April 3. This exemption aims to allow the administration to develop a process for taxing non-U.S. content in vehicles and parts covered under the agreement.
In his analysis, Laffer expressed concerns about the potential damage the proposed tariffs could inflict on the industry, stating that they could diminish profit margins for U.S. manufacturers and weaken their ability to compete internationally. He stressed that a 25% tariff could have detrimental effects on the industry.
In an interview with The Associated Press, Laffer clarified that the analysis focused on the economic implications rather than criticizing Trump’s trade strategies. He commended Trump’s expertise in trade matters and acknowledged that the tariff threats could be a strategic negotiation tactic.
While Trump’s tariff plans have caused concerns among investors and consumers, Laffer’s analysis underscores the economic risks associated with implementing import taxes without securing durable trade deals. The paper also praises the USMCA as a significant achievement that has benefited North American trade policy.
According to the analysis, the per-vehicle cost without the USMCA exemption would be $4,711, but this figure could be reduced to $2,765 if the exemptions were maintained.
Laffer, known for developing the Laffer curve, which highlights the optimal tax rate for revenue collection, was honored by Trump with the Presidential Medal of Freedom. Laffer’s extensive experience in economic policy includes serving on President Ronald Reagan’s economic advisory board and running his economic consultancy, Laffer Associates.
Trump remains optimistic about the impact of the 25% auto tariffs, believing that they will incentivize automakers to expand production in the U.S. and reduce the budget deficit. He recently cited Hyundai’s planned investment in a steel plant in Louisiana as evidence of the success of his strategy.
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