Associated Press, by Josh Boak
WASHINGTON (AP) – Prominent economist Arthur Laffer warns in a new analysis that a 25% tariff on automobile imports by President Donald Trump could add $4,711 to the cost of the vehicle, saying the proposed tax could undermine the ability of US automakers to compete with foreign counterparts.
In a 21-page analysis obtained by The Associated Press, Laffer, who was awarded the Presidential Medal of Freedom for his contributions to economics in 2019, says the automotive industry is in a better position if the Republican president maintains supply chain rules with Canada and Mexico from the 2019 USMCA trade agreement.
The White House has temporarily exempt automobile and parts imports under the USMCA from April 3rd, allowing the Trump administration to put together a process of taxing non-US content on vehicles and parts that fall under the agreement.
“Without this exemption, the proposed tariffs are at risk of irreparable damage to the industry and are inconsistent with the administration’s goal of strengthening US manufacturing and economic stability,” Laffer wrote in his analysis. “The 25% tariff not only reduces or perhaps eliminates profit margins for US manufacturers, but also weakens the ability to compete with international rivals.”
In an interview with the Associated Press on Friday, Laffer said the report caused a “kerfuffle” and warned that it would only apply to economics, not Trump’s negotiation skills and a trade strategic approach.
“The report shows that economics of what happens was a tariff to be introduced,” he said. “This is about facts, not our feelings.”
Economists have quickly praised Trump as a negotiator with deep knowledge of trade issues, indicating that he could use tariff threats during Trump’s first term to reduce barriers to trade and improve the outcomes of the US economy.
“Donald Trump is more familiar with profits from trade than the politicians I’ve ever spoken about in my life,” Laffer said. “Don’t take this paper in shape or form, as if it were criticising Donald Trump and what his strategy is.”
He added that he trusts the president and views him as extremely capable.
Trump’s tariff plans scare the stock market, with US consumers saying Laffer’s analysis and other reports suggest possible economic risks if the threat of import taxes fails to produce a durable set of trades with other countries. This paper reminds Trump that it’s not too late to change courses, and is particularly complementary to praise the USMCA negotiated in his first term as a “significant achievement.”
“The US-Mexico-Canada Agreement (USMCA) serves as the basis for President Trump’s first term of office and soon became a dominant feature of North American trade policy, fostering economic growth, stabilizing supply chains, and strengthening the US automotive industry.”
The analysis states that the cost per vehicle without the USMCA exemption would be $4,711, but if the exemption is maintained, that figure would be $2,765 lower.
Trump praises Raffer with the highest civilian honor 45 years after economists famously sketched for the ruffer curves on the napkins, showing that there is an optimal tax rate to collect income.
The bell-shaped curve showed that the tax rate is so high that it could self-destruct to generate tax revenue. Many Republicans have accepted the curve as evidence that lower tax rates could generate stronger growth that lead to higher tax revenues.
“Dr. Laffer has helped inspire, guide and implement extraordinary economic reforms that recognize the power of human freedom and ingenuity and that recognize the power of human freedom and ingenuity to guide families from poverty to a truly bright future,” Trump said in awarding the medal.
In addition to being a professor at the university, Lafar served on President Ronald Reagan’s Economic Policy Advisory Committee. He has his own economic consulting company, Laffer Associates. In 1970 he was the first Chief Economist of the White House Office of Management and Budget.
Laffer also advised Trump during the 2016 presidential election and co-authored the flattering book, Trumpnomics: America’s First Plan to Revive Our Economy.
Trump claims that the 25% tariff will allow more foreign and domestic automakers to expand production and open new plants in the US. On Monday, he celebrated a planned $5.8 billion investment by a South Korean automaker to build a steel factory in Louisiana as evidence that his strategy would be successful.
Trump said a 25% automobile fare will help reduce the federal government’s fiscal deficit while moving more production to the US.
“I think most of the time you’ll be leading the car in one place,” Trump told reporters Wednesday. “For now, the cars have been sent to Canada, Mexico, and all over the place. That’s ridiculous.”
Original issue: March 28, 2025, 12:26pm EDT
