US President Donald Trump has announced a 25% tariff on imported cars and light trucks set to take effect next week, further escalating the global trade tensions he initiated upon returning to the White House this year. Industry experts anticipate this move could raise vehicle prices and hinder production capabilities.
“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 a recent event in the Oval Office.
The President views tariffs as a strategic method to generate revenue that could help offset his proposed tax cuts and rejuvenate the declining US industrial sector. These collections are scheduled to begin on April 3, coinciding with his planned announcement of reciprocal tariffs targeting countries that contribute significantly to the US trade deficit.
Canadian Prime Minister Mark Carney has criticized this decision, labeling it a “direct attack on Canadian workers.” Meanwhile, European Commission President Ursula von der Leyen expressed concern, stating that the action is “bad for businesses, worse for consumers.”
The United Auto Workers (UAW), who have long opposed free trade agreements that they argue have devastated American jobs, welcomed the tariffs. UAW President Shawn Fain remarked, “These tariffs are a major step in the right direction for autoworkers and blue-collar communities across the country. It is now on the automakers, from the Big Three to Volkswagen and beyond, to bring back good union jobs to the US.”
In response to the tariff announcement, shares of automakers fell in after-hours trading, pointing to anticipated declines in US equity index futures, reflecting investor unease.
The legal foundation for this action derives from a 2019 national security investigation under Section 232 of the Trade Act of 1962, which examined the implications of auto imports on US national security. At the time, no tariffs were imposed.
In a sign of the rapid implementation of these tariffs, the directive includes temporary exemptions for certain auto parts while federal officials work out the complexities of enforcing the proclamation.
Read more: Trump to impose 25% tariff on all vehicles not made in the US
For the time being, automotive parts that comply with the US-Mexico-Canada Agreement (USMCA), which was negotiated by Trump during his initial term, will remain exempt from tariffs. This agreement facilitates mostly duty-free trade between the US and its two primary trading partners, Canada and Mexico. “USMCA-compliant automobile parts will remain tariff-free until the Secretary of Commerce, in consultation with US Customs and Border Protection, establishes a process to apply tariffs to their non-US content,” said White House Principal Deputy Press Secretary Harrison Fields on X. Additionally, all other auto parts imports will be exempt until May 3.
Brad Setser, a former US Treasury official now with the Council on Foreign Relations, cautioned that approximately four million vehicles from Canada and Mexico may now face tariffs exceeding 25%. This increase could likely push vehicle prices higher and dampen US car sales “for a while.” He deemed these tariffs a “clear violation” of the USMCA and raised concerns about the implications for the free trade agreement with South Korea.
The potential economic impact could be substantial, with US imports of finished vehicles comprising nearly one percentage point of the GDP.
In 2024, the US imported automotive products worth $474 billion (€440 billion), including passenger cars valued at $220 billion, with Mexico, Japan, South Korea, Canada, and Germany being the largest suppliers among close US allies.
As Mr. Trump’s announcement approached, the shares of US-listed automakers dipped amid fears that tariffs would resonate throughout a global auto industry already reeling from existing uncertainties associated with Trump’s swift and sometimes unpredictable tariff threats. The benchmark S&P 500 Index fell 1.1%, marking a decline of over 4% so far in March, representing its worst monthly performance in nearly a year.
Since his inauguration on January 20, Trump has both announced and postponed various tariffs on Canada and Mexico, citing their involvement in allowing opioids like fentanyl into the US; he has also set import taxes on goods from China for similar reasons and imposed high tariffs on steel and aluminum imports. The upcoming announcement on April 2 has been hinted at as potentially different from the uniform tariffs he has been promising.
“We’re going to make it very lenient,” Trump said. “I think people will be very surprised. It’ll be, in many cases, less than the tariff they’ve been charging (the US) for decades.”
However, the new vehicle levies are projected to escalate costs for consumers by thousands of dollars, likely impacting new vehicle sales and resulting in job losses, especially since the US automotive sector is heavily dependent on imported parts. “At a time when cost is the number one concern for American car buyers, US automakers are working to provide a range of affordable vehicles for consumers,” stated Jennifer Safavian, president and CEO of Autos Drive America, a trade association for 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 US,” she added.
Edited By Ali Musa
Axadle Times International – Monitoring.
