U.S. Imposes 25% Tariff on Imported Cars: Impacts and Reactions

On March 26, U.S. President Donald Trump signed a proclamation at the White House announcing a 25% tariff on imported automobiles, effective April 3. According to the Financial Times, this move marks a significant escalation in the trade war initiated by the Trump administration.

According to the document released by the White House, Trump invoked Section 232 of the Trade Expansion Act of 1962 to impose the 25% tariff on imported cars and certain auto parts, citing national security concerns.

The tariff applies to imported passenger vehicles—including sedans, SUVs, and light trucks—as well as key automotive components such as engines and transmissions. The document also indicates that the tariff could be expanded to other parts if necessary. However, within the framework of the USMCA (United States-Mexico-Canada Agreement), auto importers may certify the U.S.-made content of their vehicles, ensuring that the 25% tariff applies only to non-U.S. components.

According to a U.S. government official quoted by American media, if a car imported from Mexico contains 50% U.S.-made parts and 50% foreign-made parts, the applicable tariff rate would be reduced by half to 12.5%.

Currently, U.S. tariffs on automobiles stand at 2.5%, with a 25% tariff already in place for light trucks. Vehicles that meet the USMCA’s rules of origin are exempt from tariffs. The new 25% tariff, as outlined in the White House document, is an additional levy on top of existing duties.

Data from S&P Global indicates that nearly half of all new passenger vehicles sold in the U.S. in 2024 were assembled outside the country. According to the U.S. Census Bureau, the total value of U.S. imports of automobiles, auto parts, and engines reached a record $474.3 billion last year.

Trump argues that the tariff will encourage more production within the U.S., generate new government revenue, and help reduce national debt. However, many economists warn that higher tariffs will increase car prices, ultimately harming consumers.

In response to the U.S. tariff announcement, major trade partners—including the European Union—expressed disappointment, explored retaliatory measures, and called for negotiations to resolve the dispute.

Canadian Prime Minister Mark Carney stated that his government would explore countermeasures to protect Canada’s interests and pledged to boost domestic production of auto parts. He described the U.S. auto tariffs as a "direct attack" on Canada and its workers, warning that U.S.-Canada relations were "in a state of collapse."

Mexico, the largest source of U.S. auto imports, also voiced strong opposition. Guillermo Rosales, Executive Chairman of the Mexican Association of Auto Dealers, stated that the tariffs violate the USMCA, disrupt economic integration, and will ultimately hurt the American people rather than benefit the U.S. economy.

European Commission President Ursula von der Leyen expressed "deep regret" over the U.S. decision, emphasizing that the automotive industry is vital for innovation, competitiveness, and high-quality employment. She noted that the EU and U.S. auto supply chains are deeply interconnected and that "tariffs hurt businesses and consumers alike." She reaffirmed the EU’s commitment to resolving disputes through dialogue while safeguarding European economic interests.

According to the European Automobile Manufacturers Association, EU exports of new vehicles to the U.S. declined by 4.6% in 2024 to €38.46 billion, though the U.S. remains the EU’s largest automotive export market.

Hildegard Müller, President of the German Association of the Automotive Industry, criticized the U.S. tariffs, calling them "a highly damaging signal against free and rules-based trade." She warned that the policy would severely impact car manufacturers, global supply chains, and consumers.

Mike Hawes, CEO of the UK’s Society of Motor Manufacturers and Traders, called the decision "disappointing," emphasizing that the U.S. and UK auto industries have long enjoyed a productive relationship. He argued that instead of imposing additional tariffs, both nations should seek ways to create new opportunities for manufacturers.

Japanese Prime Minister Shigeru Ishiba, responding to questions in the Japanese Senate on March 27, questioned the fairness of the U.S. tariff policy: "Japan has made significant contributions to the U.S. economy in terms of investment and employment. Is it really appropriate for the U.S. to impose the same tariff rate on all countries without differentiation?"

According to Nikkei, automobiles are Japan’s most important export to the U.S., with 2024 exports reaching approximately ¥6 trillion (about $40 billion), accounting for nearly 30% of Japan’s total exports to the U.S.

Economists and industry experts widely believe that the U.S. auto tariff hike will have a severe impact on the U.S. automotive sector. Higher car prices are expected to reduce consumer demand, potentially leading to layoffs across the auto and parts manufacturing industries. The tariff will not only affect the U.S. economy but also disrupt global trade and supply chains.

Gary Hufbauer, Senior Fellow at the Peterson Institute for International Economics and a former U.S. Treasury official, described the tariff as "a major blow" to the automotive industry. He warned that higher vehicle costs would reduce demand, especially among financially strained consumers, and could trigger "large-scale layoffs" across the auto sector.

John Murphy, Senior Vice President for International Policy at the U.S. Chamber of Commerce, argued that the tariff would hurt, rather than help, the American auto industry, endangering thousands of U.S. jobs. "On top of auto tariffs, the U.S. has already imposed steel and aluminum tariffs as well as duties on Canadian and Mexican goods. The additional 'reciprocal tariffs' set to take effect on April 2 will only add to the burden. The auto industry is facing an unsustainable level of taxation," he said.

Kenneth Kim, a senior economist at KPMG, warned in a newly released report that the tariffs could drive up new car prices by several thousand dollars—potentially by $10,000 or more. With American consumers already facing inflationary pressures, higher car prices could further strain household budgets.

The Financial Times, citing Bernstein Research analyst Daniel Roska, reported that nearly half of all vehicles sold in the U.S. are imported, while 60% of parts in domestically assembled cars come from abroad. If the tariff remains in place for more than 4 to 6 weeks, it could have a significant impact on the entire industry.

The report also highlighted the potential economic fallout in Mexico, where the auto sector employs roughly 1 million people and contributes about 4% of GDP.

Müller cautioned that the auto tariffs will have direct consequences for the U.S. economy, negatively affecting all stakeholders in the automotive supply chain. She warned that escalating global trade tensions could undermine economic growth and employment worldwide.