On Wednesday, President Trump announced a 25% tariff on auto imports to the United States, following through on his promise to impose taxes on foreign automakers and boost employment in the economy. The tariffs apply to all cars and light trucks manufactured outside the United States, as well as certain auto parts.

The White House anticipates that the tariff will generate $100 billion in annual duties. According to Trump, as quoted on Yahoo Finance, the move will drive market growth, contrary to what the majority of analysts and industry leaders anticipate.

The market reacted negatively to the announcement, estimating that the move would adversely impact domestic and foreign automakers alike.

Speedbump for Automakers

Industry experts raised serious concerns about the potential fallout from the tariffs, predicting that the tariffs will have significant repercussions, such as affecting U.S. car production, as well as increasing car prices and adversely impacting employment.

Industry experts also expect economies to come up with retaliatory tariffs, which could dampen automaker confidence. Per Ontario Premier Doug Ford, as quoted on Yahoo Finance, Canada was almost certain to retaliate, given the significant presence of U.S.-made vehicles in its market.

Additionally, Japanese prime minister Shigeru Ishiba stated that he would not rule out countermeasures against the tariffs. According to Yahoo Finance, Autos Drive America, which lobbies for foreign automakers based in the United States, aired caution, warning that the tariff could have negative effects, contrary to Trump’s intentions.

If car production declines, employment in the automaker industry is expected to take a hit. Per the Bureau of Labor Statistics, as quoted on the New York Times, approximately one million in the United States are working in the auto and parts manufacturing industry, while another two million are employed in car dealerships.

However, President Trump argues that tariffs will push automakers to shift production to the United States, boosting the domestic auto sector’s growth.

Tariffs to Drive up Costs

According to Yahoo Finance, Trump's tariffs are expected to add thousands of dollars to new-car prices, putting further strain on U.S. consumers, who are already grappling with inflationary pressures. Per Cox Automotive, as quoted on the New York Times, the tariff would increase the price of a car made in Mexico or Canada by $6,000.

While cars manufactured outside the United States will become more expensive, even vehicles manufactured domestically could see price hikes due to higher costs for parts and potential supply-chain disruptions from lower-cost manufacturing countries. The increased manufacturing costs will ultimately be passed on to the consumers, negatively impacting sales.

The resultant price hike would discourage consumers, forcing automakers to curb production. As predicted by Cox Automotive, U.S. factories would cut manufacturing by 20,000 cars per week, resulting in a 30% decline from the typical output.

ETFs to Consider

Investors can keep an eye on the below-mentioned funds.

First Trust S-Network Future Vehicles & Technology ETF (CARZ Quick QuoteCARZ - Free Report)

First Trust S-Network Future Vehicles & Technology ETF seeks to track the performance of S-Network Electric & Future Vehicle Ecosystem Index with a basket of 99 securities. The fund has gathered an asset base of $31.9 million and charges an annual fee of 0.70%.

First Trust S-Network Future Vehicles & Technology ETF has lost 2.28% over the past month and 0.49% over the past three months. In a single day, the fund declined 2.14% at market close on March 26.

Fidelity Electric Vehicles and Future Transportation ETF (FDRV Quick QuoteFDRV - Free Report)

Fidelity Electric Vehicles and Future Transportation ETF seeks to track the performance of the Fidelity Electric Vehicles and Future Transportation Index with a basket of 52 securities. The fund has gathered an asset base of $29.5 million and charges an annual fee of 0.40%.

Fidelity Electric Vehicles and Future Transportation ETF has gained 2.40% over the past month and 0.17% over the past three months. However, in a single day, the fund declined 1.67% at the market close on March 26.

Global X Autonomous & Electric Vehicles ETF (DRIV Quick QuoteDRIV - Free Report)

Global X Autonomous & Electric Vehicles ETF seeks to track the performance of the Solactive Autonomous & Electric Vehicles Index with a basket of 74 securities. The fund has gathered an asset base of $325.6 million and charges an annual fee of 0.68%.

Global X Autonomous & Electric Vehicles ETF has lost 2.91% over the past month and 2.81% over the past three months. In a single day, the fund declined 1.62% at market close on March 26.

KraneShares Electric Vehicles & Future Mobility ETF (KARS Quick QuoteKARS - Free Report)

KraneShares Electric Vehicles & Future Mobility ETF seeks to track the performance of the Bloomberg Electric Vehicles Index with a basket of 53 securities. The fund has gathered an asset base of $66.2 million and charges an annual fee of 0.72%.

KraneShares Electric Vehicles & Future Mobility ETF has gained 3.10% over the past month but has lost 0.22% over the past three months. In a single day, the fund declined 0.61% at market close on March 26.

First Trust Nasdaq Transportation ETF (FTXR Quick QuoteFTXR - Free Report)

First Trust Nasdaq Transportation ETF seeks to track the performance of the Nasdaq U.S. Smart Transportation Index with a basket of 38 securities. The fund has gathered an asset base of $29.6 million and charges an annual fee of 0.60%.

First Trust Nasdaq Transportation ETF has lost 7.22% over the past month and 10% over the past three months. In a single day, the fund declined 0.93% at market close on March 26.