- Long-promised duties on autos seen driving up prices.
- Auto stocks and wider market tumble on tariff worries.
- Car tariffs to go into effect after midnight April 3.
US President Donald Trump on Wednesday unveiled a 25% tariff on imported cars and light trucks starting next week, widening the global trade war he kicked off upon regaining the White House this year in a move auto industry experts expect will drive up prices and stymie 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 US 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 US trade deficit.
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, which represents factory workers at Big Three Detroit automakers and are long-standing critics of free trade agreements it says have destroyed American jobs, lauded it.
“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 US,” UAW President Shawn Fain said in a statement.
“With these tariffs, thousands of good-paying blue collar auto jobs could be brought back to working-class communities across the United States within a matter of months, simply by adding additional shifts or lines in a number of underutilized auto plants.”
Shares of automakers fell in after-hours trading and US equity index futures slid, indicating stocks were headed for a lower open on Thursday.
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 US 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 US-Mexico-Canada Agreement (USMCA) on trade that Trump negotiated during his first term. The agreement allows for largely duty-free trade between the US and its two largest trading partners.
“USMCA-compliant automobile parts will remain tariff-free until the Secretary of Commerce, in consultation with US Customs and Border Protection (CBP), establishes a process to apply tariffs to their non-US content,” White House principal deputy press secretary Harrison Fields said on X.
It further exempts until May 3 all other auto parts imports.
Brad Setser, a former US 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 US 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 US imports of finished vehicles are close to a percentage point of US gross domestic product.
The US imported $474 billion worth of automotive products in 2024, including passenger cars worth $220 billion. Mexico, Japan, South Korea, Canada and Germany, all close US allies, were the biggest suppliers.
Stocks fall
Ahead of Trump’s announcement, shares of US-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.
Musk later posted on X that Tesla would not be unscathed. “The tariff impact on Tesla is still significant,” he wrote.
General Motors shares slumped 8% in after-market trading. Shares in Ford and US-traded shares of Chrysler-parent Stellantis fell about 4.5% each. In Asia, shares in Toyota Motor, Honda Motor and Hyundai Motor all fell between 3% and 4%.
Shares in Tesla, which makes all the cars sold in the US locally but with some imported parts, were down 1.3%. Trump said the duties announced on Wednesday could be a net neutral or even good for Tesla. He said the company’s CEO and his close ally Elon Musk did not advise him regarding tariffs on autos. Musk later posted on X that Tesla would not be unscathed. “The tariff impact on Tesla is still significant,” he wrote.
The companies did not immediately return emails seeking comment.
The US 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 .SPX 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.
Trump’s tariffs and threats to impose them have sowed uncertainty in businesses and roiled global markets since returning to the White House in January. On Wednesday, Trump reiterated that he expects the auto tariffs to prompt automakers to increasingly invest in America instead of Canada or Mexico.
“Companies that have invested hundreds of millions and billions of dollars on plants in Canada and Mexico will likely see their profits cut dramatically over the next few quarters, if not into a couple years,” said Sam Fiorani, analyst at AutoForecast Solutions.
“We’re going to look at adjusting our sales and production forecasts because this will throw everything into chaos.”
Autos Drive America, a group representing major foreign automakers including Honda, Hyundai, Toyota and Volkswagen VOWG.DE, said 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 US”
Automakers in North America have largely enjoyed free trade status since 1994. Trump’s 2020 US-Mexico-Canada Agreement (USMCA) imposed new rules designed to increase regional content production.
After initiating 25% tariffs on Mexico and Canada in early March, Trump allowed a one-month reprieve for vehicles produced in compliance with the terms of his USMCA, which benefited American companies.
The new rules do not extend that reprieve.
“Companies that have invested hundreds of millions and billions of dollars on plants in Canada and Mexico will likely see their profits cut dramatically over the next few quarters, if not into a couple years,” said Sam Fiorani, analyst at AutoForecast Solutions.
“We’re going to look at adjusting our sales and production forecasts because this will throw everything into chaos.”
The White House said that 25% tariffs on automotive parts imported to the US will begin no later than May 3, taxing key automobile parts including engines, transmissions, powertrain parts, and electrical components.
Importers of automobiles under the USMCA will be given the opportunity to certify their US content so that only their non-US content is taxed, the White House said.
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 US) 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 US 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, US 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 US.”
Cox Automotive, an automotive services provider, predicted before the new tariff announcement that $3,000 would be added to the cost of a US-made vehicle and $6,000 on a vehicle made in Canada or Mexico without exemptions.
If tariffs go through, by mid-April Cox expects disruption to “virtually all” North American vehicle production leading to 20,000 fewer vehicles produced per day, or about a 30% hit to production.
