Trump has started a new chapter in his trade playbook, invoking Section 232 of the Trade Expansion Act of 1962 to impose a 25% tariff on all passenger vehicles imported into the country. The move, which also covers certain auto parts, extends trade war concerns beyond the US borders with Canada and Mexico. It now affects major allies and seems to disregard free trade agreements worldwide.

The White House announced on 26 March the new tariff will “counter trade practices that threaten to impair US national security.” The measure seeks to maintain a resilient domestic industrial base and strengthen America’s manufacturing industry.

While some market observers agree with the US President’s aggressive tariff policy, believing it will accelerate the creation of a domestic supply chain, others warn the approach could have the opposite effect.

“With trade policy uncertainty soaring to an all-time high, US policy has become a leading source of risk,” notes Max Yoeli, senior research fellow at Chatham House. “Sharp consequences are already visible as investors begin to question US economic exceptionalism. Equity markets have dropped in a rapid correction, consumer and business confidence have plummeted, and analysts have cut growth forecasts.”

Trump’s unpredictability continues to challenge businesses, analysts, economists and journalists around the globe, as anything can change once or multiple times before or after measures are implemented. Some hope diplomacy and negotiations will reverse the new tariffs, but at the moment, stakeholders are waiting for official guidance to gauge the impact on the automotive industry, both in the US and abroad. More clarity, or not, is expected on 2 April – the so-called “Liberation Day.”

What’s known so far?

The 25% tariff will be applied to foreign cars and light trucks from 3 April, as well as engines, transmissions, powertrain parts and electrical components from 3 May.

Importers under the United States-Mexico-Canada Agreement (USMCA) can certify their US content, so the 25% tariff will apply only to the value of non-US content. USMCA-compliant auto parts will remain tariff-free until the US establishes a process to apply tariffs to their non-US content. This will be tricky, particularly, for parts made and assembled in North America, with its highly integrated supply chain and components crossing the borders multiple times before a finished product is made.

The US imported around 8 million cars, SUVs and light trucks last year, around 50% of registrations. Washington says the US automotive and auto parts industry, owned by American and foreign firms, employs around 1 million US workers. These workers, Trump claims, “bear the brunt of unfair practices,” justifying the need for reciprocal tariffs – “meaning whatever countries charge the US, we will charge them. No more, no less.”

Ahead of a “hectic” week, ING economist James Knightley notes the impact could be higher than anticipated, as sectors and countries will be subject to multiple tariffs. “Reciprocal tariffs… will [be] additive to the already announced measures – so we could be talking 50% tariffs on European autos, for example, if there is a flat 25% tariffs applied to imports from the European Union (25% EU plus 25% auto tariff),” he warns.

Rear Suspension Assembly

Source: APMA

Immediate impact

The auto tariffs will have “immediate negative consequences” for the North American automotive industry, says Brian Kingston, ceo of the Canadian Vehicle Manufacturers’ Association (CVMA). “The result is higher costs for manufacturers, price increases for consumers, and a less competitive industry. We continue to urge all parties that all USMCA-compliant parts, components, and vehicles be free of tariffs under that agreement.”

“China could only dream of damaging the American auto industry so quickly and so decisively as what Trump is threatening to do here again,” adds Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association (APMA). “Nobody in the business knows what’s going to happen. We’re going to have a shutdown. I say a week, some people are saying two weeks.”

Cox Automotive’s director Mark Schirmer says the auto-focused tariffs will “disproportionately” impact the US’s most affordable vehicles. He adds that 40% of vehicles priced under $40,000 will be directly impacted. Those models assembled in Canada or Mexico, or with reported content from those countries, are likely to see costs increase by $5,855. “It is likely that not all the costs will be passed directly to buyers, but one reality is hard to ignore: Prices will go up for suppliers, for automakers and for buyers… 30 years of free trade blown up. Unthinkable,” Schirmer continues.

James Carter, principal consultant at Vision Mobility, expects a 20-30% automotive market contraction in North America due to the tariffs. EVs may be slightly less affected as the previous US administration had demanded local content rules, which could potentially still enable the EV market share to continue to expand.

“Initially, OEMs may wear some of the tariffs. However, it’s more likely we’ll see an across-the-board price hike, probably around 10%, as a response so they can balance out total margins of their product lines,” Carter tells Kallanish. “Longer term, all tariffs will be passed on to customers.”

While estimating the potential immediate price hike remains highly speculative, the consensus is that this waiting-to-happen global trade war will likely backfire on the US.

Morgan Stanley economists, for instance, strongly believe tariffs are likely to escalate, especially against China, and a domino effect could unravel. “While the Federal Reserve is hoping for a lower inflation and continued strong growth, we’re going to go in the opposite direction, some higher inflation and some weaker growth, with the central bank having to sit back and wonder: How is this all going to end?”

Carmakers’ reaction

Major trading partners have shown a willingness to reach a deal, emphasising the importance of their existing free trade agreements and their “mutually beneficial” partnership. Yet, they have also warned they wouldn’t hesitate to retaliate to safeguard their interests.

Germany said it “will not give in” and that Europe must “respond firmly.” The UK argued it has a relatively equal trading relationship with the US. France described the move as “incoherent” and “a waste of time.” China said Washington continues to violate international trade rules. Japan is pushing for an exclusion while noting “all cards are on the table,” discretely threatening US financing deals.

Yet, as world leaders try to measure their words not to antagonise President Trump and inflame the situation, he warns that if the EU and Canada work together “to do economic harm” to the US, large-scale tariffs – “far larger than currently planned, will be placed on them both to protect the best friend that each of those countries has ever had.”

Trump's tariffs timeline

Source: Kallanish

The European automakers’ association ACEA says 749,170 new EU-made cars, including electric models, were exported to the US last year. US-made cars entering the EU totalled 164,857, of which 18,841 were battery-electric – most likely Teslas.

European-headquartered companies contribute around 830,000 vehicles to the nearly 4.9m annual vehicle output in the US, employing a third of the country’s auto workforce. “European manufacturers export between 50% and 60% of the vehicles they make in the US, making a substantial positive contribution to the US trade balance,” ACEA adds.

These numbers might be slightly off as the German auto association VDA claims that German carmakers alone produced 844,000 vehicles in the US last year. Calling the new tariffs a “disastrous signal” for free, rules-based trade, VDA warns: “The risk of a global trade conflict – with negative effects on the global economy and growth, prosperity, jobs and consumer prices – is high on all sides.”

The US is Germany’s most important trading partner in the overall automotive trade. In 2024, Germany exported nearly 450,000 vehicles to the US. The US is also the second largest market for new EU and UK vehicle exports.

The BMW Group, for example, exported around 225,000 BMW vehicles with an export value of over $10 billion in the US in 2024. A spokesperson says its plant in Spartanburg, South Carolina, “has not only been an important location in our global BMW Group production network for over 30 years but is our biggest plant worldwide as it serves the domestic and international market.” Since 2014, the plant has exported around two-thirds of its total production, bringing in $104 billion in US export value.

While advocating for “constructive talks” to ensure planning security and avoid a trade conflict, the Volkswagen Group highlights it has invested more than $14 billion in the US recently.

A spokesperson for Mercedes-Benz also says the company is currently assessing the impact of the new tariffs, while supporting “free and fair trade.” The group has 24 locations in the US, across 13 states, primarily producing passenger cars and vans.

Along the same lines, British carmaker Bentley says: “As a major UK exporter, we continue to advocate for open markets and stable trade relations. These are essential for a competitive economy and especially for the automotive industry.”

Jaguar Land Rover, another major UK exporter to the US, says it is awaiting further information and will make a statement “as appropriate, in due course.”

Swedish carmaker Volvo Cars, which also produces vehicles for Polestar at its factory in Charleston, South Carolina, notes it’s looking into the effects of the tariff changes. “It’s too soon to comment further at this stage,” a spokesperson adds.

Japan’s Toyota and Nissan, plus South Korea’s Hyundai Motor Group have also taken the neutral approach and avoided commenting. While Tesla and Ford did not respond to Kallanish’s request for comment, Stellantis and GM shared the same response voiced by their trade representative, the American Automotive Policy Council (AAPC).

The Washington-based group, which also represents Ford, says: “US automakers are committed to President Trump’s vision of increasing automotive production and jobs in the US and will continue to work with the administration on durable policies that help Americans.” Yet, it notes that it is “critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector that has been a key success of the President’s USMCA agreement.”

With tensions running high and the clock ticking, stakeholders across the auto industry are watching closely – uncertain whether the new tariffs signal a hardened stance or the first step in a broader shift in trade relations.