Key Takeaways
President Trump continues to try to re-industrialize the United States with 25% tariffs on auto imports and auto part imports, effective April 3.
In 2024, the United States imported $424 billion worth of automotive products, $220 billion of which were vehicles.
Trump is basing his tariff actions on a 2019 Department of Commerce Section 232 study, which determined that excessive imports weakened the domestic industrial base and could impair national security.
Prices are liable to rise significantly for purchasers of foreign cars at least until manufacturers begin to shift production to the United States, as some automakers are already doing.
Since the tariffs also affect auto parts, which are sourced globally, disruption to the domestic market may result until supply chains adjust, which could also result in price increases.
President Trump announced 25 percent tariffs on auto imports and imported auto parts beginning April 3 to increase domestic manufacturing, affecting an industry built on a complex global supply chain. Cars built in America contain parts that come from all over the world. The United States imported $474 billion worth of automotive products in 2024, including passenger cars worth $220 billion. Mexico, Japan, South Korea, Canada, and Germany are the biggest suppliers. President Trump says the tariffs are permanent and on top of any existing taxes as he sees them as a revenue stream that could raise $100 billion annually. The administration based the tariffs on a 2019 Commerce Department investigation from Trump’s first term. That investigation, under Section 232 of the Trade Expansion Act of 1962, “found that ‘excessive’ foreign auto imports weakened the domestic industrial base and could impair national security.”
If the taxes are fully passed onto consumers, the average auto price on an imported vehicle could increase by $12,500. One estimate is that automakers are seeing costs rise by $6,700 per vehicle sold, though it is unclear how much automakers will absorb or how much prices will increase for auto buyers. Trump mentioned that he would like to provide an incentive to help car buyers by allowing them to deduct from their federal income taxes the interest paid on auto loans for vehicles made in America.
Japan, which lobbied Trump with promises to invest in the United States, called the tariffs “extremely regrettable” and is petitioning for an exception, claiming that its automakers are big employers in the United States. According to Chief Cabinet Secretary Yoshimasa Hayashi, Japanese automakers have made direct investments in the United States worth about $61.6 billion and created around 2.3 million jobs. Japan wants to negotiate with the United States, as the tariff hike will have a large negative impact on the Japanese economy. Hyundai, a South Korean automaker, announced a $21 billion investment in the United States in a bid for tariff relief and plans to build a $5.8 billion steel plant in Louisiana. South Korea is preparing an emergency response to the tariff announcement by April.
Shares in European automakers were down sharply. According to Bloomberg, Mercedes and Porsche alone could see tariffs wipe out a combined $3.7 billion in operating profits. The tariffs are expected to be particularly tough on Germany, which exports cars from companies such as Volkswagen, Mercedes-Benz, and BMW. Europe would be heavily hit, with the United States accounting for over a fifth of the EU export market and around 18% of UK auto exports. The auto sector is vital for the European economy, accounting for around 7% of GDP and 6% of employment, and has already been hit hard by the transition to electric vehicles, tighter regulations, slower replacement by auto buyers, and much higher energy costs related to their transition to “net-zero.” The EU is preparing a robust response, but wants to avert a tariff war.
U.S. automakers are also affected, with General Motors stock down more than 6 percent in premarket trading and Ford shares down 3 percent. Shares in Stellantis, the owner of Jeep and Chrysler, dropped nearly 3.6%. Tesla may be less affected by the measures, but Elon Musk warned on X that “Tesla is NOT unscathed,” as the company depends a lot on imported parts. The Trump administration believes that there is excess capacity at U.S. automakers that will enable them to ramp up production to avoid the tariffs by manufacturing more domestically.
Canada and Germany threatened retaliation against Trump’s 25% tariff on imported vehicles, which would expand the trade war. In a Truth Social post, Trump warned Canada and the European Union that if there was any joint retaliation, “large scale Tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had!” For autos and parts under the USMCA trade pact applying to the United States, Mexico, and Canada, the 25% tariffs apply only to non-U.S. content.
Conclusion
President Trump announced 25% tariffs on imported cars and auto parts, effective April 3. These tariffs will be on top of other tariffs that are already in effect or have been announced. The auto tariffs are permanent, according to President Trump’s announcement. U.S. and foreign automakers have plants worldwide to accommodate global sales while trying to maintain competitive prices. While the Trump administration believes there is excess manufacturing capacity in the United States, it could take years for companies to design, build, and open the new factories that Trump wants. In the meantime, more households could be priced out of the new car market, where vehicle prices average about $49,000 — if the tariffs on autos and their parts are passed onto consumers, making them keep their current vehicles longer.
