Politico — 2025-03-26
News from Brussels
The tariffs, which the U.S. will start collecting on April 3, are likely to drive up car prices domestically, dealers warn.
President Donald Trump announced Wednesday that he plans to impose an additional 25% tariff on hundreds of billions of dollars worth of imported cars and auto parts, hitting key trading partners and allies like Mexico, Canada, South Korea, Japan and Germany.
The United States imported $214 billion worth of passenger cars in 2024, according to Commerce Department data. Trump said the U.S. would start collecting the new duties on cars and light trucks on April 3, which is just one week away.
A White House official, granted anonymity to discuss the issue, said the new 25% tariff will be applied to autos parts, as well. That would hit another $192 billion worth of imports from Mexico, Canada, China, Germany, Japan and other suppliers, per the Commerce Department.
“This is the beginning of Liberation Day in America,” the president said at the White House. “We’re going to take back just some of the money that has been taken from us.”
Five countries — Mexico, Japan, South Korea, Canada and Germany — supplied most U.S. auto imports. Three of those countries — Mexico, Canada and South Korea — have duty-free access to the U.S. auto market under the terms of free trade agreements that Trump renegotiated during his first term in office.
The White House official said cars imported from Canada and Mexico would be taxed based on the amount of non-U.S. content in the vehicle. So, if a car made in Mexico contains 50% American content and 50% foreign, the 25% tariff rate would be cut in half to 12.5%, the person said.
All other countries face a 2.5% tariff on their passenger car exports to the United States and a 25% tariff on light trucks, a high duty-rate that is a legacy of the 1960s-era trade war over European barriers to U.S. poultry exports. Trump said his new duties would be in addition to those, raising the tariff rate for passenger cars to 27.5% and the rate for light trucks to 50%.
Although Trump used tariffs aggressively during his first term, he generally hit products such as steel, aluminum and industrial parts, which the average consumer does not purchase themselves. Or he hit lower-priced consumer goods like Chinese apparel and footwear, where the impact of the tariffs on prices was not as noticeable.
However, a tariff increase on automobiles is likely to increase the price of a high-dollar item that millions of Americans purchase every year. U.S. consumers bought nearly 16 million cars in 2024 at an average price close to $50,000, according to Cox Automotive’s Kelley Blue Book, an industry tracker.
President Donald Trump signs an executive order on auto tariffs in the Oval Office at the White House, on March 26, 2025. | Francis Chung/POLITICO
Almost 50% of vehicles sold in the U.S. are imported. Sudden tariffs on countries like Mexico and Canada will hit U.S. automakers, which have extensive operations in both countries, harder than their competitors offshore, according to research company Bernstein.
“If the goal is to re-shore production and rebuild U.S. auto manufacturing, a phased and predictable policy is the only viable path, in our view,” according to Bernstein. A 25% tariff for more than a month would probably have a chilling effect on the U.S. auto industry, the company added.
Trump said Wednesday he plans to make the auto tariffs permanent for the rest of his term.
Major trading partners immediately condemned the move.
“As I have said before, tariffs are taxes – bad for businesses, worse for consumers equally in the US and the European Union,” European Commission President Ursula von der Leyen said in a statement. “We will now assess this announcement, together with other measures the US is envisaging in the next days.”
Canadian Prime Minister Mark Carney said that although he was waiting for the exact text of Trump’s executive order, the tariffs were a violation of the United States-Canada-Mexico Agreement and the two countries’ long history of cooperation on automobile manufacturing dating back to their initial 1965 bilateral agreement.
“It’s entirely inconsistent with CUSMA and indeed, the long history of relations in the auto sector right back the Auto Pact,” Carney at a campaign stop in Kitchener, Ontario in the province’s southwest, using the Canadian acronym for the North American trade deal it signed with Trump during his first administration.
Carney and Trump have not spoken since he became Liberal Party leader on March 9, succeeding Justin Trudeau.
“It would be appropriate that the president and I speak, given the action that he’s taken. I’m sure that will happen soon,” Carney said. “I’m not going to give you a precise timing on that.”
Auto dealers have warned the administration that tariffs would make cars less affordable at a time when many Americans remain concerned about inflation.
A 25% tariff could increase the average price of a car by between $3,000 and $10,000, Valerie Romero, chair of the American International Automobile Dealers Association, said during a recent discussion hosted by the Washington International Trade Association.
“Those are huge, huge dollar amounts and the consumer just can’t absorb that” on top of rising auto loan rates and higher insurance and repair costs, Romero said.
“Tariffs on U.S. trading partners, who are vital to our automotive supply chains, would make it harder for average Americans to afford the new vehicles of their choice,” Mike Stanton, president of the National Auto Dealers Association, echoed in a recent statement.
However, Sen. Bernie Moreno (R-Ohio), who previously owned car dealerships, said in an interview earlier Wednesday that he isn’t worried about the tariffs’ potential effects on the auto industry, however. Moreno said he is “thrilled” that Ohio will see more manufacturing in the sector and a boost in suppliers and jobs, as well as communities being “rebuilt” after “40 years of de-industrialization.”
Although Trump’s move is aimed at boosting the number of automotive jobs, it could accelerate a trend away from car ownership among younger consumers, said Ed Gresser, a former official in the Office of the U.S. Trade Representative now at the Progressive Policy Institute, a left-leaning think tank.
“The U.S. car market, long-term, is already not growing, and a lot of people are thinking about doing without cars,” Gresser said. “And the more you’re pushing up the price of new cars, the larger that group of people not buying them is going to be.”
A Deloitte survey in January found 70% of American consumers preferred to buy a car that cost less than $50,000 and that an increasing number of consumers in the United States, Germany and China used transportation services rather than their own cars.