GM Faces Major Challenges from Tariffs

General Motors, a pivotal player in American industry, is currently grappling with the fallout from President Trump’s 25% tariffs imposed on imported vehicles and auto parts, which many consider to be unconstitutional.

In the second quarter of 2025, GM reported a staggering $1.1 billion hit to its operating profits due to these tariffs. This drastic reduction nudged the company’s profit margin down from 9% to 6.1%. Net profits plummeted, falling 36.1% from the previous quarter and 40.7% compared to a year earlier. Looking at the bigger picture, the full year’s tariff estimates range from $4 billion to $5 billion, which is still less than 3% of GM’s overall revenue—a figure that represents more than half of the company’s typical annual income over the last decade.

The consequences extend far beyond GM’s financial statements. Tariffs imposed on imports are partly absorbed by companies and, inevitably, passed on to consumers. We’ve seen this particularly impact sectors sensitive to imports, from furniture and appliances to clothing and toys. For instance, prices for men’s shirts and sweaters increased by 4.9% in just June.

The situation is dire. When businesses, like GM, try to absorb these rising costs, they end up with lower revenues, which means less capital for investing in new technologies or expanding operations. This slowdown translates to less economic growth overall and fewer resources available for salary increases and new hiring.

Data backs this up. Recently, about 14,000 manufacturing jobs disappeared, and by 2025, my profits were completely wiped out. In June, average weekly earnings fell by 0.4%, marking a near 5% decrease year-over-year.

Shareholders are feeling uneasy, too. When a company’s future revenue expectations decline, stock valuations typically follow suit. Since 2012, GM’s stock price has actually risen over 200%. But currently, the price-to-earnings ratio sits at 6.83, alarmingly close to where it was in 2012. With more than half of GM’s annual net profit on the chopping block and expecting a $5 billion hit, we could see over $20 billion wiped off its market capitalization if valuations adjust accordingly.

It’s a bit strange, isn’t it? GM’s stock seems to suffer despite clear evidence of tariff damage to profits, slipping 8% and struggling 13% from its 2021 peak post-election. This downturn impacts the investments of millions of middle-class Americans and retirees, leading to lower dividends and diminished returns. Companies desperate for capital face challenges in staving off lower growth, fewer jobs, and stagnant wages.

In an effort to counteract these burdens, GM is boosting U.S. production, cutting costs, and increasing domestic content in line with the USMCA Trade Agreement rules. Even if successful, the estimated net impact of this strategy still threatens to consume a substantial portion of GM’s already slim profit margins. On average, GM’s net profit ratio has been under 5% in the last decade, meaning that the profits on a $30,000 vehicle are under $1,500.

While GM is shifting some production back to U.S. plants and seeking to rebuild its supply chain, this reflects the adaptability of private companies. Yet, reallocating resources to dodge these tariffs can compromise efficiency. The push for compliance may help GM survive, but it doesn’t yield any of the economic benefits that come from a truly free market. Resources that should drive innovation or lower prices get tied up navigating through arbitrary trade barriers.

Interestingly, about half of the tariff burdens stem from GM’s operations in Korea, illustrating the absurdity of imposing tariffs on allies. Instead of fostering strong relationships through fair trade deals, these tariffs could inadvertently nudge allies like South Korea closer to adversaries like China. This hardly seems like sound economic strategy; it looks more like geopolitical shortsightedness.

Politicians often favor tariffs over other taxes because they can be somewhat invisible compared to income or sales taxes. This lets them avoid facing their constituents directly, instead blaming “greedy” corporations for price increases. For example, Trump criticized Jeff Bezos for preventing Amazon from transparently displaying customs charges, labeling it a “hostile and political act.”

Ultimately, protectionist policies carry significant costs. Persistent tariffs can lead to higher prices, shrinking profits, lower wages, and stunted economic growth. GM’s quarterly results serve as a stark warning.