Could tariffs weaken Detroit’s impact on the US car manufacturing industry?

US: Experts cautioned that the effects of President Donald Trump’s tariffs on the US auto sector might potentially jeopardize Detroit’s recovery after decades of decline.

“So many of the houses here have some kind of connection to the car sector.” This year’s home market activity won’t benefit if the tariffs lead to the ‘Big Three’ and their suppliers firing local workers,” Redfin agent Desiree Bourgeois, who is located in Michigan, told the media report.

Detroit’s Decline and Surprising Comeback

With more than 1.8 million inhabitants, Detroit rose to become the sixth biggest city in the US in the 1950s, when General Motors employed hundreds of thousands of Americans. However, by the 1970s, the “Motor City” and the so-called Big Three—General Motors, Ford, and Chrysler (now Stellantis)—were in serious financial trouble.

Growing international competition, a few oil crises, and economic downturns gave the Midwestern metropolis a near-fatal blow in the next years, and in 2013 it became the biggest city in U.S. history to file for bankruptcy. But Detroit has seen a surprising comeback after the COVID-19 epidemic.

Numerous businesses have relocated their operations and employment to the city, including Microsoft, Google, Ford Motor, and Stellantis, which has helped to revitalize it. Since the start of the epidemic, there has been a sharp increase in demand for homes, which has raised property values and prices.

Since 2020, the city’s median and average property prices have increased. According to recent Mortgage Calculator research, Detroit ranked second among U.S. communities with a population of 200,000 or more that had the most rises in average housing prices after the epidemic began.

The city’s average house price rose 72 percent, from $46,586 to $80,127, between March 2020 and October 2024. Prices continue to rise: the typical selling price of a property in February was $87,500, up 4.3 percent from the same month last year, according to the most recent Redfin statistics.

According to the U.S. Census Bureau, the city had its first population increase since the 1950s, with a net gain of 1,852 persons between July 2022 and July 2023. New Investments and Growing Housing Demand Fuel a Comeback Although it was originally limited to downtown, Detroit’s comeback began before the epidemic.

“There has been a broad revitalization of the dining and retail areas in downtown Detroit, along with a resurgence of large corporate investment. “Luxury buyer price tags were being applied to new lofts, townhomes, and condos,” Desiree Bourgeois of Redfin told the media report.

Buyers from the suburbs who were eager to experience the new downtown Detroit were mostly drawn to these new construction projects.

“The city proper has been experiencing a boom or high level of interest for a period of years. However, the other housing market, which consists of the wide-ranging communities around the downtown region, continued to suffer from population declines and property value declines, which, on average, led to low interest in house sales, according to Bourgeois.

It wasn’t unusual to see only one or two houses inhabited on a street in many communities. Overall, urban regions were steadily expanding, mostly due to out-of-state corporate migrants or purchases from the suburbs, while neighborhood market development was slowing to stagnation.

Things altered after the epidemic

“The market was altered by a few new organizations that entered, or entered in larger numbers than before. According to Bourgeois, more people in their twenties discovered that they could obtain financing because of the cheap interest rates.

According to the Redfin agent, these new demographics began turning impoverished communities into attractive places to reside.

“It seemed like as the neighborhoods began to revive, the investors saw all the potential in the abandoned or land bank-owned homes they could purchase cheaply, flip and resell for a large profit,” she said.

“From all across the nation, investors began purchasing homes or undeveloped property in large numbers for development. Nowadays, it’s not unusual to see a bidding battle or have a property sell for more than the asking amount.

In the midst of a national affordability crisis, relatively cheap house prices have increased demand in the city and given investors and others who are trying to climb the property ladder optimism.

“Starting in mid-2020, demand for homes in the extremely affordable Detroit metro area increased, and home prices rose accordingly,” Senior Economic Research Analyst Hannah Jones of Realtor.com told the media report.

At $279,950, prices peaked in June 2022, over $18,000 more than they were in June 2019 prior to the pandemic. When house size was taken into account, Detroit’s price surge was even more remarkable. In the summer of 2024, the median listing price per square foot reached a peak of $185, which was 31.9 percent more than in the summer of 2019, according to Jones.

Both benefits and drawbacks have resulted from the surge in housing values for residents. Homeowners now have greater equity and access to additional financial options because of the recent surge in property prices.

According to recent University of Michigan Poverty Solutions research, the city’s homeowners increased their home worth by $700 million in 2023. At a news conference in March, Detroit Mayor Mike Duggan said that homeowners have benefited by $4.6 billion between 2014 and 2023. Black homeowners, who accounted for three-quarters of the overall wealth rise, profited the most from this upturn.

“Tax bills have gone up and many were caught unprepared for that,” Bourgeois said. “Rental prices have continued to increase as well, so for the renters, it’s also put a strain on their budget.”

Although Detroit’s housing prices are still rising, they are doing so significantly more slowly than they were in 2020 and 2021, which may be advantageous to residents. But inventories are still lower than they were before the outbreak, which keeps prices rising.

Trump’s Tariffs Are a Threat

The Trump administration has levied a 25 percent tariff on all steel and aluminum imports, as well as a 25 percent duty on all automobiles and certain auto components imported into the United States.

Uncertainty about the effects of the tariffs is making many prospective buyers rethink buying a home this year, according to Bourgeois, who has direct experience with this in the Michigan real estate market.

“The constant back and forth of the tariff war has buyers and sellers questioning if it’s the right time to jump into the market or hang back to wait and see what happens,” she said.

This might thus reduce Detroit’s development by cooling demand. However, the city at the center of the American car industry may potentially be more directly impacted by the tariffs.

“Automakers incur far greater expenses as a result of tariffs on auto inputs, including steel, aluminum, and auto components. Increased input prices have a detrimental effect on automakers by eroding their profit margins and/or passing on to customers, which may reduce demand, Jones said.

In any case, Jones said that slower production and layoffs may result from less demand and fewer earnings. “Should these large automakers find it necessary to cut jobs, the housing market will feel the effects,” she said.

“Unemployment increases and income levels decrease if the car industry contracts or becomes less stable. A buildup in inventory and stagnant or declining property prices might result from purchasers being discouraged by lower incomes and less secure work, she added.

“If job opportunities do not return to the area, then residents may look elsewhere to find stable employment, leading to out-migration.”

The CEO of the car-shopping service CoPilot, Pat Ryan, is certain that the tariffs imposed by the Trump administration would raise prices for American manufacturers.

“In the near run, tariffs will raise the cost of cars. Over time, they will make it more difficult and costly for automakers to move all of their manufacturing to the United States,” he told the media report.

“From a consumer standpoint, the tariffs exacerbate a years-long affordability problem in the car market,” Ryan said. He said that supply chain delays caused prices to hit record highs during the COVID-19 epidemic. Since new cars are often over 30% more costly than they were before the outbreak, many buyers are unable to afford to buy one.

“Even though prices are still near historical highs, we’re seeing consumers rush to buy in anticipation of tariffs potentially pushing costs even higher,” he said. For example, the inventory of new cars has decreased by 39% in only the last two months. As a consequence, dealers will have less buffer from current inventories going ahead, and tariff-related price hikes will probably impact the market sooner.

Importantly, the Big Three—large employers in Detroit that produce a variety of models and car components outside the United States—will also be significantly impacted by tariffs. For instance, foreign automobiles account for over half of General Motors’ sales.

The majority of Detroit automakers’ factories are already running at maximum efficiency, and they do not currently have any plans to construct any new ones—which is difficult to do in the first place. Citing “a lot of costs and a lot of chaos,” which he related to Trump’s tariffs, Ford CEO Jim Farley recently said that his business would not be constructing new factories in the United States anytime soon.

In contrast to General Motors, which said that it will increase manufacturing of its range-topping pickups in the United States, Stellantis announced that it would halt production in a number of its facilities and lay off 900 workers while it determines how to handle tariffs.

Trump’s tariffs might have a cascading effect that would bring down Detroit’s comeback.

Last month, auto industry analyst John McElroy warned Fox 2 Detroit that “Detroit gets pneumonia if the auto industry catches a cold.” “We depend so heavily on the automotive industry that if it gets impacted, Detroit and Southeast Michigan feel it the most.”

From Poor To Worse

If nations affected by Trump’s tariffs choose to levy their own taxes on American products, the situation may worsen.

“Since almost no car is made entirely in the U.S., automakers face cost increases across their entire supply chain—costs that will almost certainly be passed onto the consumer,” Ryan said.

“There are some carve-outs: for instance, Canada announced that automakers can bring in a number of U.S.-assembled cars without paying tariffs, as long as some vehicles are still manufactured in Canada.”

Reworking production and operations to avoid tariff-hit nations, however, “isn’t a quick fix,” Ryan said.

This will be a complicated renovation that takes years to complete. He said, “Some automakers have an advantage, especially those that profit from the U.S., Mexico, and Canada free trade agreement, which includes some Big Three vehicles.”

The import tax is only imposed on the percentage of non-American content in such vehicles in accordance with the conditions of that agreement. However, it is insufficient to protect the market from more widespread harm.

All of these problems would become significantly more difficult to resolve if the United States went into a recession this year, as many analysts have said is becoming more probable as a result of tariffs.

Customers may feel under pressure to purchase new and used cars as quickly as possible due to economic uncertainties and tariffs that are expected to raise automobile costs. We may see a sharp decline in automobile sales in the event of a recession,” Ryan said.