On Wednesday, U.S. President Donald Trump announced a 25% tariff on imported cars and light trucks, set to take effect next week. This move, which expands the global trade conflict he reignited after returning to the White House, is expected by auto industry experts to raise prices and hinder production.
“What we’re going to be doing is a 25% tariff for all cars that are not made in the United States,” Trump said at an event in the Oval Office.
Trump, who sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining U.S. industrial base, said collections would begin on April 3, the day after he plans to announce reciprocal tariffs aimed at the countries responsible for the bulk of the U.S. trade deficit.
Mixed Feelings
European Commission President Ursula von der Leyen described the move as “bad for businesses, worse for consumers,” while Canadian Prime Minister Mark Carney labeled it a “direct attack” on Canadian workers.
“We will defend our workers, we will defend our companies, we will defend our country, and we will defend it together,” Carney told reporters in Ottawa.
The United Auto Workers, longtime opponents of free trade agreements they argue have led to the loss of American jobs, praised the move.
“These tariffs are a major step in the right direction for autoworkers and blue-collar communities across the country, and it is now on the automakers, from the Big Three to Volkswagen and beyond, to bring back good union jobs to the U.S.,” UAW President Shawn Fain said in a statement.
Shares of automakers fell in after-hours trading and U.S. equity index futures slid, indicating stocks were headed for a lower open on Thursday.
Partial Exemptions
The legal basis for the action is a 2019 national security investigation under Section 232 of the Trade Act of 1962 into auto imports conducted by Trump’s first administration. That probe found that auto imports impair U.S. national security, but at the time Trump did not take action to impose tariffs.
In an indication of the hastiness with which the new levies are being imposed, Trump’s directive included temporary exemptions for auto parts while government officials sort through the complexities of turning his proclamation into practice.
It exempts for now, for instance, automotive parts that are compliant with the U.S.-Mexico-Canada Agreement (USMCA) on trade that Trump negotiated during his first term. The agreement allows for largely duty-free trade between the U.S. and its two largest trading partners.
“USMCA-compliant automobile parts will remain tariff-free until the Secretary of Commerce, in consultation with U.S. Customs and Border Protection (CBP), establishes a process to apply tariffs to their non-U.S. content,” White House principal deputy press secretary Harrison Fields said on X.
It further exempts until May 3 all other auto parts imports.
‘Clear Violation’ Of USMCA
Brad Setser, a former U.S. Treasury official now with the Council on Foreign Relations, said some 4 million cars from Canada and Mexico now faced 25% or more tariffs, which would likely drive up prices and dampen U.S. car sales for “a while”.
He said the tariffs were a “clear violation” of USMCA and also raised questions about South Korea’s free trade agreement.
The economic impact could be significant, he said, noting that U.S. imports of finished vehicles are close to a percentage point of U.S. gross domestic product.
The U.S. imported $474 billion worth of automotive products in 2024, including passenger cars worth $220 billion. Mexico, Japan, South Korea, Canada and Germany, all close U.S. allies, were the biggest suppliers.
Stocks Fall
Ahead of Trump’s announcement, shares of U.S.-listed automakers fell on concerns that tariffs would send shock waves through a global auto industry that is already reeling from uncertainty caused by Trump’s rapid-fire tariff threats and occasional reversals.
Trump on Wednesday said auto tariffs could be net neutral for Tesla, the electric car company that is led by Elon Musk, who is also spearheading a government cost-cutting effort.
Musk later posted on X that Tesla would not be unscathed. “The tariff impact on Tesla is still significant,” he wrote.
The U.S. stock market also closed lower on worries over tariffs, which have dogged investors for much of the last month. The benchmark S&P 500 Index fell 1.1% ahead of the press conference, and is down more than 4% so far in March for its worst monthly performance in nearly a year.
Since taking office on January 20, Trump has announced and delayed tariffs on Canada and Mexico for what he alleges is their role in allowing the opioid fentanyl into the U.S.; set import taxes on goods from China for the same reason; launched hefty duties on imports of steel and aluminum; and has repeatedly touted his plans to announce global reciprocal tariffs on April 2.
Regarding the coming April 2 announcement, Trump indicated the measures may not be the like-for-like levies he has been pledging to impose.
“We’re going to make it very lenient,” Trump said. “I think people will be very surprised. It’ll be, in many cases, less than the tariff they’ve been charging (the U.S.) for decades.”
The new vehicle levies were expected to drive costs of cars higher for consumers by thousands of dollars, hitting new vehicle sales and resulting in job losses, since the U.S. automotive industry relies heavily on imported parts, according to the Center for Automotive Research.
“At a time when cost is the number one concern for American car buyers, U.S. automakers are working to provide a range of affordable vehicles for consumers,” Jennifer Safavian, president and CEO of Autos Drive America, a trade group representing foreign automakers, said in a statement.
“The tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers, and fewer manufacturing jobs in the U.S.”
(With inputs from Reuters)
