Kenneth Rapoza: Happy Liberation Day, America

Chung Eui-sun’s announcement was a sign that he understands Trump’s interests. It was a huge gesture of goodwill. Three days later, his country South Korea, which has a free trade agreement with the United States, was hit with 25 percent automotive tariffs going into effect April 3 for cars and May 3 for car parts. They are not alone. The White House announced universal car tariffs last week with the intention of getting multinational companies to invest in American industry, like Hyundai. The Hyundai Group, which owns Kia Motors, exported more than two million cars worth $53.36 billion in 2024, with North America accounting for 55.6 percent of exports; the United States is their biggest market. Most of the best-selling Hyundai and Kia models that are exported are also made here. 

Last year, the United States recorded a $35.2 billion trade deficit in passenger cars with South Korea, according to the Bureau of Economic Analysis. That’s nothing compared to Mexico. The United States recorded a $44 billion deficit with Mexico in passenger cars, a $38 billion deficit in passenger cars with Japan, a $17.4 billion deficit with Germany, and a $12.71 billion deficit with Canada.

Canada and the United States have the most balanced trade. We have a surplus with Canada in car parts, but we have a $46.61 billion deficit in auto parts and accessories with Mexico, a $12 billion deficit with the Germans, an $11.5 billion deficit with South Korea and a $12 billion deficit with China. 

Properly speaking, the United States no longer has an auto industry. The North American Free Trade Agreement  (now the United States-Mexico-Canada Agreement) turned the American automotive industry into a North American auto industry. Executives like Ford CEO Jim Farley said there would be “chaos” when Trump first threatened Mexico and Canada with tariffs because he thought it meant the end of free trade for cars and car parts. But Trump’s proclamation means that only vehicles that do not meet the 75 percent North American content requirement have to pay the tariff. This duty free content requirement was agreed upon by the three countries when they signed the USMCA. Otherwise, they could just import China-made auto parts, plug it into a car, and pay a low 3.4 percent tariff.

The Canadians and Europeans tell us new car prices will rise. New car prices have always risen, even as the Mexicans make more and more of them for us, duty free. And now more tariffs are coming. Retaliation is expected. It is unclear exactly what the tariff rates will be, or if there will be exclusions. Anyone who thinks they know what to expect today will probably discover they are wrong by tomorrow.

Inflation, when it occurs, will be blamed on Trump’s trade agenda, rather than on government spending. But a February 2025 study by the Boston Federal Reserve found that a full blown 25 percent tariff on Canada and Mexico—along with an extra 10 percent tariff on China in addition to the already existing 25 percent tariffs—would cause a one-time inflation effect of only 0.5 to 0.8 percent. 

The Federal Reserve’s low inflation projection, coupled with the history of substantial post-tariff investment in the United States that will lead to greater local supply, show how misguided the current stock market jitters are.

For the pro-tariff crowd, Trump must signal that the tariffs are here for the long term. If he wants to use tariffs as protection to entice companies to reshore, those protections need to be lasting. Tariffs will not entice companies to invest long term if they see tariffs turn off as fast as they are turned on. In fact, if car tariffs are removed in Korea, I would not be surprised to see Hyundai’s $21 billion investment cut in half.

There will also be concern whether countries not subject to reciprocal tariffs become transshipment hubs for those who are. If reciprocity has other countries lowering tariffs or, in exchange for tariff relief, opening markets for a singular U.S. product (for example, chickens or cloud computing), then the America First agenda becomes the Tyson Foods First or Amazon First agenda. 

China tariffs didn’t do major damage; they rearranged supply chains. Last May, former President Biden and the Democrats supported those tariffs and extended them by four years. Biden even added more China tariffs and no one complained. Rana Foroohar of the Financial Times actually called them smart. Now the Democrats are opposed, suddenly worried about inflation. 

China is forecast to account for 45 percent of the world’s global industrial production by 2030, according to an October 2024 report by the United Nations Industrial Development Organization. The United States is projected to drop to 11 percent of global production in the next five years from 25 percent in 2000 (a year before China became a member of the World Trade Organization and its U.S. tariffs were cut to single digits from average rates of 35 percent.)

Thinking beyond the Liberation Day celebrations, if the Trump administration also wants to use tariffs as a revenue driver, as his team has said, then they will have to confirm that these tariffs are permanent. Maybe they will ultimately retreat from the new tariff rate to be announced today and will impose a universal 10 percent tariff, which would bring in around $326 billion in revenue based on 2024 import values. These ideas are still circulating within the administration. 

Trump is a deal maker, we keep hearing. If deals between two companies can take years, deals between nations take just as long. But Trump has been on this path since 2017. The best deal he can make is with America-based manufacturers and the American worker. Bilateral trade deals won’t cut it—that’s reformed globalism. We are the biggest market. The art of the deal is with the homeland now.