President Donald Trump has introduced new import taxes of 25% on automobiles and their components entering the US.
He stated that these tariffs will take effect on April 2, with levies on vehicle imports starting on April 3. The tariffs on parts will begin in May or later.
The president asserted that these measures would spur “tremendous growth” in the industry, highlighting job creation and increased investment in the US as primary benefits.
However, analysts foresee that this move could lead to temporary shutdowns of major US car production facilities, elevate prices, and strain diplomatic relations with allies.
Trump’s decision is poised to disrupt global automotive trade and significantly affect supply chains.
Last year, the US imported approximately eight million cars, accounting for about $240 billion (£186bn) in trade, which represented nearly half of the total car sales.
Mexico is the leading exporter of cars to the US, followed by South Korea, Japan, Canada, and Germany.
Many American car manufacturers also operate facilities in Mexico and Canada, established under the longstanding free trade agreement between these countries.
The White House stated that the new tariffs would not apply to car parts from Canada and Mexico until US customs and border protection can establish a system to enforce these duties. Trade worth billions crosses these borders daily.
On Wednesday, shares of General Motors fell about 3%, and Stellantis, which owns Jeep and Chrysler, dropped 3.6%.
Elon Musk, on the social platform X, mentioned that Tesla would significantly feel the impact of these tariffs.
Tariffs are taxes levied on imported goods, paid by the companies that bring these goods into the country. These firms may pass some or all of the costs on to consumers.
This initiative on car tariffs is part of Trump’s broader strategy to protect American businesses and promote domestic manufacturing.
While these tariffs are intended to protect local businesses, they also raise costs for companies reliant on foreign components.
According to the Anderson Economic Group, the cost of a car using parts solely from Mexico and Canada could increase by $4,000 to $10,000, depending on the model.
Trump informed the press that the tariffs would be “permanent,” emphasizing that cars built in the United States would not face these tariffs.
The Prime Minister of Japan, the world’s second-largest car exporter, stated that all options were on the table in response to these tariffs.
Shares in major Japanese automakers, including Toyota, Nissan, and Honda, fell on Thursday.
These tariffs are set to be enforced on the same day as other countries plan to impose penalties on the US in retaliation for previously announced tariffs.
The impact of these car tariffs on other international plans remains uncertain.
The US was the largest market for British car manufacturer Jaguar Land Rover last year, exceeding sales in both the UK and China.
UK Chancellor Rachel Reeves told the BBC that the new tariffs would be detrimental to both the UK and the US, mentioning that extensive discussions were ongoing to prevent their implementation in Britain.
For the UK, the US remains the second-largest market for car exports after the EU, according to the Society of Motor Manufacturers and Traders (SMMT).
SMMT’s CEO Mike Hawes has called for immediate negotiations between the UK and US to forge an agreement beneficial to all parties involved.
Canadian Prime Minister Mark Carney described Trump’s announcement as a “direct attack” on Canada and its automotive industry.
European Commission President Ursula von der Leyen indicated that the EU would carefully consider these measures before deciding on any response.
Trump also threatened to impose “far larger” tariffs if the EU and Canada collaborated to cause what he described as “economic harm” to the US.
The automotive sector is already grappling with the broader implications of increased tariffs on steel and aluminum.
Major automakers like Ford and General Motors have urged Trump to exempt the car industry from any further duties.
A study by the US International Trade Commission in 2024 predicted that a 25% tariff on imports would reduce imports by almost 75%, while increasing average prices in the US by about 5%.
White House officials are keen for US workers to produce more parts and not simply assemble them, asserting that their measures are motivating companies to relocate operations.
A day before the latest tariffs, Hyundai of South Korea announced it would invest $21 billion (£16.3bn) in the US and build a new steel plant in Louisiana.
Trump hailed the investment as a “clear demonstration that tariffs strongly work.”
