On Wednesday, U.S. President Donald Trump revealed a 25% tariff on imported cars and light trucks, set to take effect next week. This move significantly intensifies the global trade war he reignited upon returning to the White House earlier this year. Auto industry analysts predict the tariffs will increase vehicle prices and slow production.
“What we’re going to be doing is a 25% tariff for all cars that are not made in the United States,” Trump stated during an Oval Office event.
Trump views tariffs as a dual-purpose tool—to generate revenue that offsets his tax cuts and to revive America’s long-declining industrial sector. He announced that collections would begin on April 3, a day after unveiling additional reciprocal tariffs targeting countries that contribute most to the U.S. trade deficit.
European Commission President Ursula von der Leyen criticized the decision, calling it “bad for businesses, worse for consumers,” while Canadian Prime Minister Mark Carney condemned it as 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 (UAW), a long-time opponent of free trade agreements that they argue have eliminated American jobs, welcomed the decision.
“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 U.S.,” said UAW President Shawn Fain in a statement.
Following the announcement, shares of automakers fell in after-hours trading, and U.S. stock futures indicated a weak opening for Thursday.
Legal Basis and Exemptions
The tariff decision is rooted in a 2019 national security investigation under Section 232 of the Trade Act of 1962, which determined that auto imports threatened U.S. national security. While Trump initially refrained from imposing tariffs at that time, his administration is now acting on the findings.
The rollout of these tariffs appears rushed, with temporary exemptions granted for auto parts while officials work through implementation details. Notably, automotive components that comply with the U.S.-Mexico-Canada Agreement (USMCA) will remain duty-free until the Commerce Secretary, in collaboration with U.S. Customs and Border Protection (CBP), determines a process to apply tariffs to their non-U.S. content.
“USMCA-compliant automobile parts will remain tariff-free until the Secretary of Commerce, in consultation with U.S. Customs and Border Protection (CBP), establishes a process to apply tariffs to their non-U.S. content,” White House principal deputy press secretary Harrison Fields posted on X.
Additionally, all other auto parts will be exempt from tariffs until May 3.
Former U.S. Treasury official Brad Setser, now with the Council on Foreign Relations, estimates that around four million cars imported from Canada and Mexico will face tariffs of 25% or more. He warned that the move could drive up car prices and reduce U.S. vehicle sales for an extended period.
He also noted that the tariffs appear to be a “clear violation” of the USMCA and raised concerns about potential conflicts with South Korea’s free trade agreement with the U.S.
The economic consequences could be substantial, as the U.S. imports approximately $474 billion worth of automotive products annually, including $220 billion in passenger cars. The largest suppliers are Mexico, Japan, South Korea, Canada, and Germany—all close U.S. allies.
Market Reaction and Economic Impact
Ahead of Trump’s announcement, shares of U.S.-listed automakers fell over concerns that the tariffs would create turmoil in an already strained global auto industry. The uncertainty surrounding Trump’s frequent tariff threats and policy reversals has weighed heavily on the sector.
The U.S. stock market also declined, with the S&P 500 Index dropping 1.1% before the announcement. The index has now fallen over 4% in March, marking its worst monthly performance in nearly a year.
Since his return to office on January 20, Trump has introduced and postponed tariffs on Canada and Mexico for allegedly allowing fentanyl into the U.S., imposed tariffs on Chinese goods for the same reason, and levied duties on steel and aluminum imports. He has also repeatedly teased the announcement of global reciprocal tariffs on April 2.
However, Trump suggested that the upcoming April 2 tariffs may not be as strict as initially anticipated.
“We’re going to make it very lenient,” he said. “I think people will be very surprised. It’ll be, in many cases, less than the tariff they’ve been charging (the U.S.) for decades.”
Industry experts predict the new auto tariffs will significantly increase vehicle costs, reduce sales, and lead to job losses, given the U.S. automotive sector’s reliance on imported components.
“At a time when cost is the number one concern for American car buyers, U.S. automakers are working to provide a range of affordable vehicles for consumers,” said Jennifer Safavian, president and CEO of Autos Drive America, a trade group representing foreign automakers. “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 U.S.”
