The latest analysis by renowned economist Arthur Laffer cautions that President Donald Trump's proposed 25% tariffs on car imports could increase the cost of a vehicle by $4,711, potentially hurting U.S. automakers' ability to compete globally. Laffer's 21-page report, obtained by The Associated Press, suggests that maintaining existing supply chain regulations with Canada and Mexico, as outlined in the 2019 USMCA trade deal, could benefit the auto industry. To address concerns, the White House has granted a temporary exemption on auto and parts imports under the USMCA from the tariffs, starting on April 3, to allow for the development of a strategy to tax non-U.S. content in vehicles and components covered by the agreement.

Laffer's analysis warns that imposing such tariffs could negatively impact the industry and hinder U.S. manufacturers' competitiveness with international peers. Despite causing apprehension among investors and consumers, Trump's tariff propositions have not convinced even his preferred economists of their effectiveness. Laffer's paper emphasizes the importance of initiatives like the USMCA in boosting economic growth, stabilizing supply chains, and supporting the U.S. auto sector, asserting that the current per-vehicle cost without the USMCA exemption would be $4,711, which could drop to $2,765 if the exemptions were maintained.

Recognized with the Presidential Medal of Freedom by Trump for his contributions to economics in 2019, Laffer is known for his development of the "Laffer curve," which highlights the optimal tax rate for revenue generation. The curve underscores the theory that excessively high tax rates could be counterproductive in revenue collection, advocating for lower tax rates to stimulate economic growth and generate higher tax revenues, a notion favored by many Republicans.