By Ana Swanson, Jack Ewing and Tony Romm
President Donald Trump said earlier this week that he would impose a 25% tariff on cars and car parts that were imported into the United States, a move that is likely to raise prices for American consumers and throw supply chains into disarray as the president seeks to bolster U.S. manufacturing.
The tariffs will go into effect April 3 and apply both to finished cars and trucks that are shipped into the United States and to imported parts that are assembled into cars at American auto plants. Those tariffs will hit foreign brands as well as American ones, like Ford Motor and General Motors, which build some of their vehicles in Canada or Mexico.
Nearly half of all vehicles sold in the United States are imported, as well as nearly 60% of the parts in vehicles assembled in the United States. That means the tariffs could push up car prices significantly when inflation has already made cars and trucks more expensive for American consumers.
During remarks at the White House, Trump said the tariffs would encourage auto companies and their suppliers to set up shop in the United States.
“Anybody who has plants in the United States, it’s going to be good for,” he said.
But the auto industry is global and has been built up around trade agreements that allow factories in different countries to specialize in certain parts or types of cars, with the expectation that they would face little to no tariffs. That has been particularly true for North America, where national auto sectors have been stitched together by trade agreements since the 1960s.
Mexico is the largest source of vehicle imports in the United States, followed by Japan, South Korea, Canada and Germany.
Stock markets fell on news that the auto tariffs would be imposed. Shares of major carmakers tumbled further in after-hours trading, after the White House clarified that the tariffs would also cover imported auto parts. General Motors was down nearly 7%, and Ford and Stellantis were more than 4% lower after the markets closed. Tesla’s stock fell 1% in extended trading.
Trump argues that the tariffs will increase domestic auto production, but it’s not clear how fast he can accomplish that goal. Tariffs can encourage companies to use more products from the United States and expand production, but new factories typically take several years and can cost billions of dollars to construct.
The additional costs that tariffs will introduce could also backfire economically, harming the U.S. auto industry by squeezing its profits and slowing its sales.
The measure could also set off more trade clashes with foreign countries that send many cars to the United States. And it could invite retaliation on American exports, including cars and agricultural products.
Peter Navarro, the senior counselor to the president on trade and manufacturing, told reporters Wednesday that “foreign trade cheaters have turned America into a lower-wage assembly operation for foreign parts.” He added: “That threatens our national security because it’s eroded our defense and manufacturing industrial base.”
Navarro singled out countries including Germany, Japan and South Korea, saying they had undermined the ability of U.S. companies to sell their cars abroad. “It’s simply, simply not fair, and that’s going to change,” he said.
Some groups praised the tariffs. In a statement, the president of the United Auto Workers union, Shawn Fain, said the tariffs would “end the free-trade disaster that has devastated working class communities for decades.”
The tariffs have the potential to devastate auto and auto parts manufacturing in Canada, which employs about 125,000 people directly and accounts for about 10% of the country’s manufacturing output. About 80% to 90% of Canadian production is exported.
Canada’s prime minister, Mark Carney, called the announcement “a direct attack,” and said that because of the tariffs the historic ties between Canada and the United States “are in the process of being broken.” Carney said he would gather his Cabinet on Thursday to determine what steps Canada would take in response.
The situation is similarly dire in Mexico, where automotive manufacturing accounts for about 5% of the country’s economic activity and employs about 1 million people, according to Capital Economics.
General Motors manufactures some of its Chevy Silverado and GMC Sierra full-size pickup trucks in Mexico. Toyota’s Tacoma pickup and two Stellantis models, the Ram pickup and Jeep Compass SUV, are also made there. Factories in Canada make the Silverado, Toyota’s RAV4 SUV, the Honda CR-V and other popular models.
The administration said the 25% tariff would apply to both cars and car parts made in Canada and Mexico, despite the U.S. trade agreement signed with those nations. It created a small exception to those levies, saying any content or materials that originated in the United States but were incorporated into cars finished in Canada and Mexico would be exempt.
Otherwise, White House officials indicated that there would be no exemptions, and Trump said Wednesday that he expected the tariffs to be permanent.
Trump’s decision to impose car tariffs escalates his aggressive trade approach. Since coming into office, he has put an additional 20% tariff on all U.S. imports from China. He also imposed a 25% tariff on almost all goods from Canada and Mexico, before exempting roughly half of those imports, which trade under the rules of the North American trade agreement.
Trump plans to introduce more levies April 2, when, he has said, he will announce “reciprocal tariffs” that match the high tariffs and other trade barriers that other countries impose on American exports. Trump said Wednesday that the tariffs would be “very fair” and “very nice.”
In a call with reporters Wednesday, a White House rebutted concerns that the auto tariffs could result in a major uptick in car prices, pointing to Trump’s push to secure a new tax deduction for interest payments on auto loans, which would be limited to American cars.
But most analysts have predicted sharp price increases from tariffs. Before the details were announced, Jonathan Smoke, chief economist at Cox Automotive, a market research firm, estimated that a 25% tariff on goods from Mexico and Canada would add $3,000 even to the cost of a car built in the United States, since automakers depend on many foreign components.
Tariffs would add $6,000 on average to the prices of cars made in Mexico or Canada, a category that includes vehicles like the Toyota Tacoma pickup, gasoline and electric versions of the Chevrolet Equinox, and several models of Ram pickups, according to Cox estimates.
Smoke said higher prices would deter buyers and force automakers to curtail production. He estimated that U.S. factories would produce 20,000 fewer cars per week, or about 30% less than usual.
“By mid-April we expect disruption to virtually all North American vehicle production,” Smoke said Wednesday on a conference call with clients and reporters. “Bottom line: lower production, tighter supply and higher prices are around the corner.”
There could be a temporary benefit for companies, including Ford, Hyundai and Stellantis, that have large numbers of unsold vehicles on dealer lots. Vehicle shortages caused by tariffs will allow them to clear inventory without cutting prices. But the benefit would be short-lived.
In an effort to appease the Trump administration, some foreign carmakers have pledged to expand their manufacturing operations in the United States.
Hyundai Motor said during an event with Trump at the White House on Monday that it would invest $21 billion in the United States over the next four years. The South Korean company, which already has large factories in Georgia and Alabama, said the new investments would include a factory in Louisiana to produce steel for Hyundai, Kia and Genesis cars.
Mercedes, which produces SUVs in Alabama, plans to expand its U.S. operations, Ola Källenius, its chief executive, said in an interview in Rome this month. “We are 100% committed to the United States and will continue to be so and are poised to do more,” he said, without giving specifics.
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