Chicken Tax 2.0: Bank Of America Flags 3 Million Sales At Risk After Auto Tariffs

President Donald Trump‘s 25% tariffs on auto imports could threaten to upend the entire U.S. automotive industry.

How? According to Bank of America, car prices will be higher, and millions of unit sales could be wiped out.

In a report titled “Chicken Tax 2.0 Goes Whole Hog,” released on Thursday, analyst John Murphy, CFA, said the 25% tariff announced by Trump earlier this week could disrupt the sale of 2.5 million to 3.2 million vehicles annually, or up to 20% of the total U.S. auto market.

See Also: Inflation Will Accelerate In Coming Months’ If April 2 Tariffs Take Effect, Economist Warns

Why A Chicken Tax 2.0?

The new auto tariffs revive and expand the logic of the original 1960s-era “chicken tax” — a 25% duty initially imposed on light trucks in retaliation for a European tax on American poultry.

Trump’s latest version applies a 25% tariff on imported cars, light trucks, and key auto parts. It also includes engines, transmissions, and electrical components. The new rules take effect April 3 and will be applied on top of upcoming “reciprocal tariffs.”

The White House clarified that vehicles and parts that meet United States-Mexico-Canada Agreement standards will face tariffs only on their non-U.S. content. That will significantly reduce the cost impact for roughly 4 million vehicles annually imported from Canada and Mexico.

What Could Be The Impact?

About 7.6 million light vehicles are imported into the U.S. each year. Murphy estimates that even with the USMCA relief, the policy could lift prices across much of the market and trigger major shifts in both consumer demand and manufacturing footprints.

Bank of America estimates that if the entire 25% tariff is passed through, vehicle sales could drop by 3.2 million units per year — a 20% hit to the base trend of roughly 16 million units.

In a milder scenario where automakers absorb some of the cost and only 15% is passed on to consumers, the loss would still amount to about 2.5 million vehicles, or roughly 15% of the market.

At a transaction price threshold of $48,000, which currently segments the U.S. auto market almost evenly, the impact would shift significantly. About 65% of vehicles sold today are priced below $48,000. With full tariff pass-through, that share would fall to 44%.

If automakers try to pass on the full 25% tariff to consumers to protect their profit margins — assuming average transaction prices of $48,000 and a 10% earnings before interest and tax margin — car prices could surge by as much as $10,000 per vehicle.

“We don’t expect consumers would absorb the price increase in full. Importing original equipment manufacturers are more likely to sell vehicles at breakeven until they rebalance the production footprint,” Murphy said.

“The Trump Administration would also like to show progress in getting a portion of the about 7.6-million imported vehicles to be produced in the U.S.. This could mean about 30 production plants, about 105 thousand direct jobs, and potentially over 1 million of total jobs, he added.

Read also: Trump’s 25% Tariff Set To Hike Imported Car Prices Up To $15,000 Higher, Goldman Sachs Warns

Which Automakers Stand To Gain?

As imports become pricier, U.S.-based automakers could gain a competitive edge.

“Tesla Inc. TSLA, Rivian Automotive Inc. RIVN, and Lucid Group Inc. LCID are the only OEMs that produce all of their vehicles sold in the US in the country,” the report stated.

Ford Motor Co. F may also benefit as imports account for 20% of its total volumes.

On the contrary, General Motors Co. GM appears highly exposed to the tariffs as it imports nearly half of its vehicles.

“GM will have a lot of rebalancing to do,” Murphy stated.

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