President Donald Trump has announced new import taxes of 25% on cars and car parts coming into the US, stating that the measure will take effect on April 2. Businesses importing vehicles will begin facing the tariffs the next day, while taxes on parts are expected to roll out in May or later. Trump claimed the policy would drive “tremendous growth” in the industry, promising it would create jobs and boost investment in the US. However, analysts warn the move could temporarily shut down major car production, increase prices, and strain relations with key allies.
The new tariffs threaten to disrupt global car trade and supply chains, as the US imported approximately eight million cars last year, accounting for around $240 billion in trade, nearly half of total sales. Mexico is the largest supplier of cars to the US, followed by South Korea, Japan, Canada, and Germany. Many American car companies operate manufacturing plants in Mexico and Canada, benefiting from long-standing free trade agreements. While tariffs on car parts from these neighboring countries are temporarily exempt, US customs officials are working on a system to assess duties, according to the White House. Given that goods worth billions cross the borders daily, the new policy could have significant economic consequences.
Following the announcement, shares in General Motors dropped about 3%, while Stellantis, the owner of Jeep and Chrysler, fell 3.6%. Tesla CEO Elon Musk acknowledged the impact of the policy, stating in a post on X that “the tariff impact on Tesla is still significant.” Tariffs, which are taxes on imported goods, are paid by businesses bringing foreign products into the country, and these costs are often passed on to consumers. While Trump’s latest move aligns with his broader effort to protect American businesses and encourage domestic manufacturing, critics argue that it could drive up costs for companies dependent on foreign parts.
Analysts estimate that tariffs on parts from Canada and Mexico alone could raise vehicle prices by $4,000 to $10,000, according to the Anderson Economic Group. Trump insisted the tariffs would be “permanent,” emphasizing that “if you build your car in the United States, there is no tariff.” Japan, the world’s second-largest car exporter, has responded by saying it will consider “all options” to counter the measure. In response, shares in Japanese automakers, including Toyota, Nissan, and Honda, declined on Thursday.
The tariffs are set to take effect on the same day other countries plan to impose penalties on the US in retaliation for previously announced duties. The extent to which these new car tariffs will influence those plans remains uncertain. The US is a major market for British-based Jaguar Land Rover, surpassing sales in both the UK and China last year. UK Chancellor Rachel Reeves criticized the tariffs as harmful to both the US and the UK, adding that the British government was engaged in “extensive” talks to prevent them from affecting British exports. The UK’s Society of Motor Manufacturers and Traders (SMMT) urged both governments to reach a deal that benefits all parties.
Canadian Prime Minister Mark Carney condemned Trump’s decision as a “direct attack” on Canada’s auto industry, while European Commission President Ursula von der Leyen said the EU would evaluate the tariffs before deciding on a response. Meanwhile, Trump escalated tensions by threatening even “far larger” tariffs if Canada and the EU coordinated economic measures against the US.
The auto industry is already struggling with expanded tariffs on steel and aluminum, prompting major manufacturers like Ford and General Motors to urge Trump to exempt the sector from further duties. A 2024 report from the US International Trade Commission estimated that a 25% tariff on imports would cut foreign car sales in the US by nearly 75% while raising domestic prices by about 5%. White House officials argue that the tariffs are designed to encourage US production of car parts rather than just assembly, asserting that the policy is successfully pressuring firms to relocate manufacturing.
One day before the latest tariffs were announced, South Korea’s Hyundai revealed a $21 billion investment in the US, including plans to build a new steel plant in Louisiana. Trump praised the decision, calling it a “clear demonstration that tariffs very strongly work.” United Auto Workers union leader Shawn Fain, who had opposed Trump in the election, acknowledged the policy as a step toward reversing the “free trade disaster” that has harmed working-class communities for decades.
Meanwhile, Matt Blunk, head of the American Automotive Policy Council, expressed support for Trump’s goal of increasing domestic car production and jobs but cautioned that any tariff strategy must avoid burdening consumers with higher prices.