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Investing.com - U.S. President Donald Trump’s threatened 25% tariffs on imported vehicles and parts may not become a permanent policy, although automotive shares are "almost un-investable" until there is a resolution to the matter, according to analysts at Wells Fargo (NYSE:WFC).
Last week, Trump revealed new automotive tariffs, making good on a pledge to penalize foreign importers of cars and light trucks into the U.S. Strategists have flagged that the move could raise domestic car prices, although Trump said over the weekend that he "couldn’t care less" if foreign automakers hike costs for consumers.
In a note to clients on Monday, the Wells Fargo analysts said they were "skeptical [the] tariffs will be permanent" because of the possible economic impact of the action, adding that they anticipate Trump will "back off" from the duties "in exchange for other trade concessions."
Citing academic studies of price elasticity, the analysts led by Colin Langan noted that, should the tariff costs be passed along to the consumer, car sales volumes could slip by around 11%.
Automotive sector pre-tax earnings are also projected be hit by $67 billion, including a $6 billion to $12 billion fall in income at the so-called "Big 3" U.S. car manufacturers -- Ford (NYSE:F), General Motors (NYSE:GM), and Jeep-maker Stellantis (NYSE:STLA).
Questions also swirl around whether U.S. firms will experience capacity constraints due to the tariffs, the analysts said, warning that light vehicle production may be impacted by global stoppages.
Trump’s auto tariff pronouncement came as he is expected to unveil a batch of new tariffs at a much-anticipated announcement on April 2.
Analysts have suggested that the day is shaping up to see a steep escalation of Trump’s push to rebalance the U.S.’s trading stance, a central goal of the early months of his administration.
Since taking office for a second term in the White House earlier this year, Trump’s policy changes have included increased tariffs on China, as well as levies on steel and aluminum goods.
A Wall Street Journal report over the weekend said Trump will consider higher tariffs against a broader range of countries, as he embarks on a trade agenda aimed at correcting perceived trade imbalances against the U.S.
Some economists have flagged that the moves threaten to refuel inflationary pressures and dent growth. Consumer spending rebounded by less than anticipated in February and a metric tracking underlying prices rose by the most in 13 months, data showed on Friday, while a survey of 12-month consumer inflation expectations spiked to the highest point in almost 2-1/2 years in March.