Trump’s auto tariffs, explained

President Donald Trump has announced a 25% tax on all cars and light trucks not made in the United States starting from April 3, 2025. This tax also applies to imported car parts, with the rollout scheduled no later than May 3, 2025.

Car parts coming from Canada and Mexico, which meet the USMCA trade deal criteria, will be temporarily exempt until U.S. Customs and Border Protection creates a way to tax non-U.S. parts. The administration claims these tariffs are designed to stimulate domestic auto manufacturing, which has decreased over the years despite a strong U.S. auto industry. Trump stated that the tariffs could bring in over $100 billion in revenue each year.

The announcement led to an immediate drop in stock markets. Shares of major US automakers, such as General Motors, Ford, and Stellantis, along with international manufacturers like Volkswagen, BMW, Toyota, and Honda, fell significantly after this news. This reflects worries about increased production costs and lower sales.

The true cost of President Trump’s auto tariffs

CNN predicts that these tariffs will considerably raise the price of new cars for American buyers, potentially adding thousands of dollars to the cost of each vehicle. This is because even cars built in the U.S. often rely on imported parts from Canada and Mexico. The Anderson Economic Group estimates that production costs for US-made vehicles could rise by $3,500 to $12,000.

The impact on consumers is expected to be considerable, given that around half of the cars sold in the U.S. in 2024 were imports. Experts warn that there may be a reduced selection of vehicles and fewer affordable options due to these price hikes.

Many foreign governments criticized the tariffs. According to NY Times, Canada’s Prime Minister called the tariffs a “direct attack” on the USMCA deal and warned of potential retaliatory tariffs. The European Union expressed regret but mentioned it would consider its response. The UK stated it would not retaliate immediately.

Japan’s prime minister indicated that all options were being reviewed. South Korea held an emergency meeting to discuss possible negative effects on its automakers. China condemned the tariffs but is mostly shielded from their direct impact due to its already high tariffs on Chinese electric vehicles.

These tariffs could seriously affect the North American auto industry because an “all American car” simply doesn’t exist. Mexico produced 4 million vehicles in 2024, with 61% sold to the U.S. Meanwhile, Canada exported 86% of its 1.3 million produced vehicles to the U.S. These tariffs threaten to disrupt production at U.S. factories that supply parts to assembly plants in Canada and Mexico.

In 2024, the U.S. exported $35.8 billion worth of parts to Mexico and $28.4 billion to Canada. If Canada and Mexico decide to retaliate, it could further harm U.S. auto production and exports. Cox Automotive estimates that the tariffs and any countermeasures could impact about 30% of North American auto production, equating to approximately 20,000 vehicles daily.

The long-term impacts of these tariffs remain unknown and will depend on how other countries respond and how well the auto industry can adjust to the new trading environment. The effects of the tariffs will go beyond the auto sector, causing price increases for consumers and potentially leading to wider economic challenges and more trade conflicts. We’ll have to wait and see where this leads.