According to Reuters, on March 26, U.S. President Trump announced that he would impose a 25% tariff on imported cars and light trucks from next week. “We will impose a 25% tariff on all non-US-made cars,” Trump said, further exacerbating the global trade war that has sparked since his return to the White House this year. Automotive industry experts expect this policy will lead to higher vehicle prices and hinder vehicle production.
Trump sees tariffs as a tool to “increase revenue to offset his promised tax cuts and revive the long-term recessional U.S. industrial base.” Trump said that the United States will impose the above tariffs starting at 12:01 a.m. on April 3, U.S. time, and the day before, he planned to announce reciprocal tariffs against major trade deficit countries.
It is worth noting that the above tariffs will be imposed on the US’s basic tariff rate of 2.5% on existing imported cars. These tariffs will apply to cars and trucks produced by countries that have signed free trade agreements with the United States, including Canada, Mexico and South Korea. These countries will be severely impacted, with Japan, EU automakers (Germany and Italy) and the UK equally difficult to survive. It is reported that in 2024, the United States imported $474 billion worth of automotive products, including $220 billion worth of passenger cars. Close American allies such as Mexico, Japan, South Korea, Canada and Germany are the largest suppliers of automobiles in the United States.
According to the scope listed by Trump, the 25% tariff will also apply to imports of major automotive parts, including engines and engine parts, transmission and powertrain parts, electrical components, etc. However, as the new tariffs are being imposed too hastily, Trump’s directives include temporary exemptions for tariffs on imported auto parts so that U.S. government officials can address the complex issues of turning his announcement into actual policies.
For example, the United States has temporarily exempted tariffs on auto parts compliant with the US-Mexico-Canada Agreement (USMCA). The USMCA was negotiated during Trump’s first term, allowing basically zero tariff trade between the United States and its two major trading partners (Mexico and Canada).
“USMCA-compliant automotive parts will continue to enjoy tax exemptions until the U.S. Secretary of Commerce negotiates with the U.S. Customs and Border Protection Agency (CBP) to establish a process for imposing tariffs on non-U.S. components in automotive parts,” said Harrison Fields, chief deputy press secretary of the White House, on X. “In addition, the U.S. tariff exemption on all other imported automotive parts will continue until May 3.
The legal basis for the action was the 2019 U.S. national security investigation conducted by Trump during his first term under Section 232 of the Trade Act of 1962. The investigation found that imported cars threatened U.S. national security, but Trump did not take measures to impose tariffs at the time.
European Commission President Ursula von der Leyen said the move was “not good for businesses and even worse for consumers”, while Canadian Prime Minister Mark Carney called the move a “direct attack” on Canadian workers. “We will defend our workers, our businesses, our nation, and we will defend together,” Mark Carney said.
However, the United Auto Workers (UAW), which has long criticized the free trade agreement for undermining U.S. jobs, appreciated it. “These tariffs are a big step in the right direction for the U.S. auto workers and blue-collar communities, and it’s now the automakers (from Detroit’s three auto giants to Volkswagen Group, etc.) to bring quality union jobs back to the U.S.,” UAW President Shawn Fain said in a statement.
After the above report was released, automakers’ shares fell in after-hours trading, and U.S. stock index futures also fell, which suggests that the stock will move lower when the market opens on March 27.