On Wednesday, President Donald Trump declared a 25% tariff on all cars imported to the United States, marking a major intensification of an ongoing global trade conflict. These tariffs, which will take effect on April 3 at 12:01 am ET, aim to bolster American auto manufacturing. For many years, a free trade agreement has allowed automakers to consider Canada, Mexico, and the United States as a single market, free of tariffs. Trump is keen on increasing domestic production despite the U.S. already having a substantial automotive industry.
“Truthfully, friends have sometimes been worse than enemies. We will impose a 25% tariff on any cars not produced in the United States,” Trump informed reporters on Wednesday before signing the executive proclamation in the Oval Office. “Cars made in the United States will not incur any tariffs whatsoever.”
The new tariffs will affect not only foreign-made vehicles but also car components, such as engines and transmissions. The tariffs on these parts are expected to come into effect “by May 3 at the latest,” as stated in the proclamation Trump’s administration released. Components from Canada and Mexico that meet United States-Mexico-Canada Agreement (USMCA) standards will temporarily avoid tariffs until a system is established by US Customs and Border Protection to implement tariffs on non-U.S. parts, according to a fact sheet from the White House.
Trump noted he has communicated with the major automakers, including Stellantis, Ford, and General Motors. “They’re excited if they have factories here,” he commented. “Those without factories will need to start building them.”
Following Trump’s announcement, shares of all three companies fell in after-hours trading. General Motors (GM) shares dipped over 7%, while stocks for Ford (F) and Stellantis (STLA), the manufacturer of Jeep, Ram, Chrysler, and Dodge, dropped more than 4%. Stocks of German automakers suffered the next morning as well, with Volkswagen’s shares declining by 1.7% and BMW’s by 1.8%.
Japanese Prime Minister Shigeru Ishiba expressed to lawmakers that all possible responses to the tariffs were under consideration. In South Korea, officials held an urgent meeting with auto manufacturers to examine the tariffs’ implications. “The U.S. tariffs are likely to present considerable challenges for our automobile companies that export high volumes to the U.S. market,” remarked Ahn Duk-geun, South Korea’s trade minister.
In Canada, Prime Minister Mark Carney labeled the tariffs a “direct assault” that violates the USMCA, asserting that Ottawa would explore its response options—including potential retaliatory tariffs. Tesla CEO Elon Musk commented on X, indicating that the tariffs would significantly impact Tesla, noting in another post the tariffs would “affect the cost of parts in Tesla vehicles sourced from abroad.” “The cost implications are not insignificant,” he added.
The tariffs jeopardize a crucial manufacturing sector and could lead to higher prices for American consumers. According to a White House official, approximately half of the almost 16 million cars, SUVs, and light trucks sold in the U.S. in 2024 were imports. Car manufacturers are likely to transfer the additional costs from tariffs to customers, particularly as they cannot swiftly relocate their entire supply chains to the U.S. Moreover, even if such a move were feasible, it would involve substantial expenses.
This announcement follows successful lobbying efforts by the Big Three automakers for exemptions on the earlier anticipated 25% tariffs on goods coming from Canada and Mexico, which were scheduled to start this month. The exemption allowed for duty-free entry of USMCA-compliant vehicles, which Trump later extended to all goods from those countries. However, this exemption is set to end on April 2, coinciding with Trump’s expected announcement of extensive tariffs against America’s trade partners.
The development was not unexpected for automakers. An executive from one company, who spoke to CNN on condition of anonymity, stated they had already been operating under the assumption that auto tariffs would be implemented next week. “We were all kind of assuming April 2 would be our day,” recounted the executive. “But if the Trump administration has shown us anything, it’s that there’s room for surprises.”
The President of the United Auto Workers union, Shawn Fain, expressed support for the tariffs. “We commend the Trump administration for working to terminate the free trade catastrophe that has impacted working-class communities for ages,” he stated on Wednesday.
Countries are refraining from announcing retaliatory actions following Trump’s declarations. European Commission President Ursula von der Leyen criticized the tariffs but indicated that the European Union would delay any retaliatory measures. “We’ll evaluate this announcement alongside other actions the U.S. is considering in the coming days,” she stated.
The European Automobile Manufacturers’ Association expressed deep concern regarding the new tariffs’ effects, especially during intense international competition for the region’s car manufacturers. Germany, being Europe’s largest economy, might face severe repercussions due to the tariffs, as automobiles and their components represent the country’s top export.
Hildegard Mueller, president of Germany’s auto association VDA, called the tariffs a “disastrous signal for free, rules-based trade.” She urged for urgent discussions between the U.S. and the EU to reach a bilateral agreement.
Ontario Premier Doug Ford echoed the sentiment for Canada to respond. “I’ve discussed this with Prime Minister Carney. We both concur that Canada must remain firm and united,” he stated on X. “I completely endorse the federal government’s preparation for retaliatory tariffs to demonstrate that we will never falter.”
At a press conference in Kitchener, Ontario, Carney remarked that Canada has previously imposed retaliatory tariffs on U.S. goods due to Trump’s levies on Canadian exports. “We will defend our workforce. We will safeguard our companies; we will protect our nation, and we will do it together.”
Beijing also denounced the tariffs, with a spokesperson from the Foreign Ministry stating that “there are no victors in a trade or tariff war.” Unlike its Asian competitors, China’s automotive sector remains largely shielded from this round of U.S. tariffs, especially since the Biden administration significantly raised tariffs on Chinese electric vehicles to 100% last May, effectively closing off that market.
The U.K.’s finance minister mentioned the country would hold off on implementing retaliatory tariffs “for the time being.” “We aren’t currently in a place where we want to escalate these trade conflicts,” Rachel Reeves told Sky News on Thursday.
The United States is the second-largest market for British automotive exports after the European Union, as per data from the Society of Motor Manufacturers and Traders, with 16.9% of U.K. auto exports heading to the U.S. in the previous year.
Experts warn that since the auto tariffs also cover parts, they could swiftly inflate the prices of new cars by thousands of dollars. There are no fully “American-made” cars, as all rely significantly on parts from Mexico and Canada. Components from these two nations could soon be subjected to the tariffs announced by Trump.
According to analyses from the Michigan-based think tank Anderson Economic Group, producing vehicles in U.S. factories will see costs rise between $3,500 and $12,000 per vehicle. The U.S. government monitors how much of each car’s components are made domestically, but current trade laws classify parts made in Canada and the U.S. similarly. No vehicle claims over 75% domestic content by the broader definition of “American-made.”
Even with the tariffs impacting imports from Canada and Mexico, the likelihood of automakers relocating production to the U.S. to evade these tariffs remains slim. The North American automotive sector has functioned under the assumption of a unified market due to free trade agreements made by U.S. presidents from Bill Clinton to Trump. Cars and parts frequently cross borders multiple times before reaching U.S. showrooms.
If the tariffs were exclusively levied against fully assembled vehicles rather than components, they would still likely elevate average car prices by limiting lower-cost options in the market. Certain vehicles assembled in Mexico, such as the Chevrolet Blazer or Honda HR-V, may become unaffordable, and manufacturers might opt to cease offering them instead of transferring production to U.S. facilities. Typically, cars produced in Mexico are lower-cost, lower-margin models that can only maintain profitability thanks to cheaper labor costs.
Industry executives indicated that such tariffs could lead to a decline in product variety. Not only could smaller, entry-level models produced in Mexico feel the pressure of increased pricing, but Trump’s auto tariffs could also affect various models that buyers do not typically recognize as imports, such as heavy-duty versions of Ram trucks, manufactured in a Stellantis facility in Saltillo, Mexico. Some configurations of the Chevrolet Silverado also come from Mexico. Shifting these more lucrative models from Mexico back to U.S. plants would be a lengthy process.
In 2024, Mexico produced approximately 4 million vehicles, as reported by S&P Global Mobility, with 2.5 million (or 61%) shipped to the United States. Major automakers, including General Motors, Ford, and Stellantis, as well as Japanese manufacturers like Toyota, Honda, Hyundai, Nissan, Mazda, and Mitsubishi, plus German firms like Mercedes-Benz and Volkswagen, have assembly plants in Mexico.
In Canada, about 1.3 million vehicles were manufactured last year, with 1.1 million (or 86%) exported to U.S. dealerships.
The implications of tariffs on auto components could ripple downwards. If the 3.6 million cars imported from these countries become too expensive, it could negatively affect U.S. auto parts suppliers that furnish parts to Mexican and Canadian assembly plants.
U.S. exports of parts to Mexico amounted to $35.8 billion last year, based on federal trade data, while $28.4 billion was sent to Canada. Parts suppliers, employing roughly 550,000 workers—almost double the count of those in auto assembly plants—might be compelled to reduce output and staffing if operations in Canada and Mexico were to halt, even temporarily.
Moreover, U.S. car exports to Canada and Mexico totaled nearly a million vehicles last year. Approximately 799,000 U.S.-manufactured cars, valued at $14.9 billion, were shipped to Canada, according to S&P Global Mobility and U.S. Commerce Department data. Additionally, about 160,000 U.S.-made cars, worth $4.6 billion, were exported to Mexico, accounting for nearly 10% of U.S. auto production. If Canada and Mexico respond with their own tariffs on U.S.-assembled vehicles, American assembly plants may have to reduce production as well.
Cox Automotive estimates that about 30% of North American auto production—around 20,000 vehicles daily—could come to a pause due to the tariffs, assuming both parts and assembled vehicles face levies.