Shortly after being sworn in for his second term as president of the United States, Donald J. Trump explained his plans to enforce a multitude of tariffs. Tariffs are taxes on imported goods used to protect domestic industries from foreign competition and encourage citizens to consume local products. However, such tariffs often have the effect of increasing the costs of what consumers buy when the added tax on companies is passed on to students. This has a particular impact on college students with limited budgets, as Drexel students have shared.
If enforced, one industry that will be impacted severely is U.S. automobiles. This is not the first time Trump has used tariffs to protect domestic industries. During his first term as president in 2018, Trump imposed tariffs on imported steel from all countries except for Canada and Mexico, which are major U.S. steel suppliers. With his current return to office, Trump expanded on these tariffs to include Canada and Mexico. Steel is a key component for consumer goods, like cars, and these tariffs could potentially lead to higher prices for consumers.
In February, Trump announced an auto tariff of 25 percent.
According to Reuters, he has argued “U.S. automotive exports in foreign markets have been unfair, citing the European Union collects 10% on vehicle imports – four times the U.S. car tariff rate.”
Trump also mentioned tariffs on semiconductor chips, tiny electronic devices that are essential for modern vehicles. For a while, the manufacturing of chips has been outsourced to Asia, but Trump’s plan to improve America’s economy includes reducing reliance on foreign suppliers to strengthen domestic production.
In response to his tariffs, second-year finance student Alicia Reeves said, “this would make her reconsider major financial decisions in the future,” primarily concerned with her student loans.
“If you come from a lower income background it’s going to be more discouraging to see these prices increase because people already see car prices as unachievable,” Reeves said. “If you have the flexibility to pay more for a car then this would have a smaller effect, but as a student in college this definitely has me concerned for when I start working.”
If car prices increase, Reeves “would delay purchasing one” and, for the duration of her time at Drexel University, use the shuttle buses offered for travel.
Imposing these tariffs has frightened U.S. automobile companies. Importing foreign cars at expensive prices will increase demand for domestic vehicles; it is basic supply and demand theory. This paired with the steel and chip tariffs could further intensify the effect. American steel manufacturers who outsource globally would have to increase their prices to stay competitive. As a result, U.S. automakers would be forced to raise prices to combat higher production costs.
This could turn away customers and lead to a decline in purchases, “blow[ing] a hole in the US industry that we’ve never seen,” Jim Farley, CEO of Ford, said to investors.
Diya Patel, a third-year finance student, is concerned about the impact of increased prices on students interested in Drexel’s coveted co-op program.
She explained that “students will have to reconsider their internships and potentially give up opportunities they may have otherwise taken” due to the challenge of finding affordable transportation methods with higher automobile prices.
Kaltra Ailu, a third-year economics major, shared a similar sentiment: “I think higher car prices would change how students plan for big purchases after graduation, especially because jobs can be anywhere and with the current job market relocation is not much of an issue. This would definitely be a big factor that post-grad students would have to consider.”
Beyond car prices, these tariffs can result in broader financial consequences. Upon announcing the auto tariffs, major automakers like Ford, General Motors, Toyota and Volkswagen all experienced a dip in their stocks.
Wolfe Research analyst Emmanuel Rosner said to CNBC, “as it relates to Autos stocks, we do not see any absolute winners…and we expect Auto Stocks broadly to struggle.”
“Stock market confidence is also important to consider,” Patel added. “I’ve heard students talking about tariffs around campus and how they don’t think car manufacturers will respond well once these are enforced. When talk like that starts to happen, you know something big is coming.”
Farley followed up saying, “There is no question that tariffs at 25% level from Canada and Mexico, if they’re protracted, would have a huge impact on our industry with billions of dollars of industry profits wiped out and adverse effect on the U.S. jobs as well as the entire value system in our industry. Tariffs would also mean higher prices for customers.”
Yahoo Finance noted an immediate change in the stock market, reporting that Nvidia, America’s largest semiconductor firm, experienced a dip in their stock of about 5 percent after Trump’s announcement. Despite Nvidia’s large consumer base, the proposed chip tariffs coupled with tariffs on other imports that use their AI chips creates a climate of uncertainty.
According to CBS News, “the automotive industry is at a critical juncture, Michael Robinet, vice president of forecasting at S&P Global Mobility said. The proposed tariffs could not only inflate vehicle prices but also disrupt production schedules, with estimates suggesting a potential 30% decrease in production.” By imposing these tariffs, Trump aims to improve America’s economy through increasing U.S. manufacturing, protecting jobs, and raising tax revenue. While the economic benefits of these tariffs can improve domestic industries and combat the growing unemployment rate, there are potential consequences like decreased demand or strained foreign relations that are important to discuss. Once in effect, these tariffs will alter the current economic status of America’s automobile industry. In turn, students will be left with fewer transportation options in a time of widespread financial uncertainty.