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President Trump said on Wednesday that he would impose a 25 percent tariff on cars and car parts that were imported into the United States, a move that could encourage U.S. auto production over the longer run but is likely to throw global supply chains into disarray and raise prices for Americans who buy an automobile.
The tariffs will go into effect on April 3 and apply both to finished cars and trucks that are shipped into the United States and to imported parts that are included in cars assembled at American auto plants. Those tariffs will hit foreign brands as well as American ones, like Ford Motor and General Motors, which assemble some automobiles outside the country, including in Canada or Mexico.
Nearly half of all vehicles sold in the United States are imported, as well as nearly 60 percent 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, Mr. 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.
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 percent and Ford and Stellantis were more than 4 percent lower after the markets closed. Tesla’s stock fell 1 percent in extended trading.
While Mr. Trump argues that the tariffs will increase domestic production, it’s not clear how immediately that goal will be accomplished. 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.
Meanwhile, the additional costs that tariffs will introduce could backfire economically, harming the U.S. auto industry by disrupting its supply chains, squeezing its profits and chilling its ability to make new investments.
The measure could also set off more trade clashes with foreign countries, particularly European nations, Japan and South Korea, whose companies send many cars to the United States.
Economists from Capital Economics said the tariffs could boost domestic investment and production. “In the short run, however, it will be inflationary and, assuming that domestic producers respond by substantially increasing their own prices, could make new vehicles something of a luxury item,” they said.
The Canadian Chamber of Commerce said in a statement that the auto tariffs would hurt the United States as well as other countries.
“Throwing away tens of thousands of jobs on both sides of the border will mean giving up North America’s auto leadership role, instead encouraging companies to build and hire anywhere else but here,” they said. “This tax hike puts plants and workers at risk for generations, if not forever.”
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.”
“Ending the race to the bottom in the auto industry starts with fixing our broken trade deals, and the Trump administration has made history with today’s actions," he said.
The administration said the 25 percent 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.
According to an administration official, if a car from Mexico is shipped into the United States with 50 percent American parts and 50 percent foreign parts, the 25 percent tariff will be levied only on the foreign parts, for an effective tariff of 12.5 percent.
While the levies are set to go into effect on April 3, Canada and Mexico will get a short reprieve on auto parts that come into the United States. That’s because of the complexity involved in determining how much of those parts ultimately come from the United States.
Car companies have set up their supply chains to snake across the borders with Canada and Mexico. Those supply chains feed into U.S. auto factories, which could see their production disrupted from a sharp increase in the price or availability of parts.
About one million Americans are employed by auto and parts manufacturers, according to the Bureau of Labor Statistics, and two million more are employed at dealers that sell cars and parts. Both groups could be hit hard by lower auto production and higher prices that lead to fewer sales. And cars are often the single biggest purchase for American families, meaning that additional costs from tariffs could weigh heavily on consumers.
Mr. Trump’s decision to impose car tariffs escalates his aggressive trade approach. Since coming into office, he has put an additional 20 percent tariff on all U.S. imports from China. He also imposed a 25 percent 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.
Mr. Trump plans to introduce more levies next Wednesday, 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. Mr. Trump said on Wednesday that the tariffs would be “very fair” and “very nice.”
“We’re going to make it very lenient,” he said. “I think people are going to be very surprised.”
Mr. Trump’s car tariffs will be imposed under an old trade case, which used a national security-related legal authority known as Section 232. During his first term, his administration carried out an investigation into car imports and concluded that they threatened U.S. national security.
The White House sought to deliver an early rebuttal to concerns that the president’s new auto tariffs could result in a major uptick in car prices. The official pointed to Mr. Trump’s push to secure a new tax deduction for interest payments on auto loans, which would be limited to American cars. They also said Mr. Trump was working to try to lower gasoline prices.
Before the details of the tariffs were announced, Jonathan Smoke, chief economist at Cox Automotive, a market research firm, estimated that a 25 percent tariff on goods from Mexico and Canada would add $3,000 even to the cost of a car built in the United States.
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. Ram is owned by Stellantis, which also produces Dodge, Chrysler and Fiat vehicles.
Higher prices will deter buyers and force automakers to curtail production, Mr. Smoke said. He estimated that U.S. factories would produce 20,000 fewer cars per week, or about 30 percent less than usual.
“By mid-April we expect disruption to virtually all North American vehicle production,” Mr. 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.
Carmakers may be able to blunt some of the impact from tariffs because they have designed factories to produce different models on the same assembly line.
“Changes in production are always an option,” said Jörg Burzer, a member of the management board at Mercedes-Benz who oversees production at the German automaker.
But it will not be possible for Mercedes to completely avoid the impact of tariffs, which will add substantially to the prices for new cars. Tariffs “would definitely add to the cost, that’s clear,” Mr. Burzer said in an interview in Berlin last week.
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 Mr. 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 S.U.V.s 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 percent committed to the United States and will continue to be so and are poised to do more,” he said, without giving specifics.
Mr. Källenius acknowledged that there was an imbalance between the tariffs that Europe and the United States imposed on auto imports. The United States charges a 2.5 percent tariff on cars from Germany and other European Union countries, while the European Union charges a 10 percent tariff on American cars.
“Why not go zero-zero?” Mr. Källenius asked.
The tariffs have the potential to devastate the entire auto-making and auto parts-making industry in Canada. It employs about 500,000 people, and accounts for about 10 percent of the country’s manufacturing gross domestic product. About 80 to 90 percent of Canada’s production is exported, and since an auto trade deal in 1965 Canadian factories have been scaled to supply the U.S. market. It would be difficult, likely impossible, to operate existing factories only for the Canadian market.
The United Automobile Workers union endorsed the tariffs, saying the decision “signals a return to policies that prioritize the workers who build this country — rather than the greed of ruthless corporations.” Shawn Fain, the union president, said in a statement that “ending the race to the bottom in the auto industry starts with fixing our broken trade deals, and the Trump administration has made history with today’s actions.”
But the union, which has often been at odds with the president, also warned against any efforts by the administration to weaken labor rights, cut social security benefits or Medicare and Medicaid.
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Tesla could be a winner from the auto tariffs announced by President Trump on Wednesday — or at least suffer less than its competitors.
Tesla, whose chief executive, Elon Musk, has taken a leading role in the Trump administration, makes all the cars that it sells in the United States in California and Texas. That means that Tesla vehicles will not be subject to tariffs, although the company will still see its production costs rise because of tariffs on imported parts.
Tesla’s Model Y sport utility vehicle and Model 3 sedan were the two best-selling electric vehicles in the United States last year. But the company has been losing market share to vehicles like General Motors’ Chevrolet Equinox E.V. and Ford’s Mustang Mach-E.
Both of those electric cars are made in Mexico and will become significantly more expensive because they have more imported parts than Tesla cars. The precise impact is unclear because the administration says any U.S. content in cars assembled in Mexico or Canada will be exempt from tariffs.
Mr. Trump said Wednesday that Mr. Musk had not influenced his decision to impose tariffs. “He’s never asked me for a favor in business whatsoever,” Mr. Trump said at the White House.
All automakers, including Tesla, import motors, batteries, raw materials and other parts from other countries. Those components will be subject to tariffs, raising prices across the board. Parts from Canada and Mexico will be granted a temporary reprieve from tariffs until the Trump administration can calculate and exempt from tariffs the U.S. content of each part.
Analysts and industry executives were still calculating the financial impact. But it is likely that the tariffs will severely disrupt supply chains and lead to production cutbacks and layoffs.
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Car prices could rise by thousands of dollars. Analysts at Bernstein said the tariffs would add as much as $75 billion per year to automaker costs, which they would have to pass on to car buyers.
Already, many Americans cannot afford to buy new cars. The tariffs will push lower-priced models like the Chevrolet Trax, which is made in South Korea, even further out of reach for middle-income buyers.
“The folks at the lower end of the buying pool are going to suffer the most,” said Erin Keating, executive analyst at Cox Automotive.
In the pickup market, one of the industry’s most profitable segments, Ford Motor could have an advantage over rivals. The company makes its F-series pickups at several U.S. factories. Toyota, General Motors and Ram, a division of Stellantis, build significant numbers of pickups in Mexico.
Virtually all major automakers have factories in the United States, allowing them to produce at least some cars not subject to tariffs on the finished product. BMW produces in South Carolina; Toyota in Kentucky and several other states; Nissan in Tennessee; Mercedes-Benz in Alabama; and Honda in Indiana and Ohio.
Hyundai on Wednesday inaugurated a new factory in Georgia where it will produce electric vehicles. The South Korean company also produces cars in Alabama.
But Hyundai, Toyota and the German carmakers also import hundreds of thousands of cars from Asia and Europe, which will be subject to 25 percent tariffs.
Volkswagen could be among the hardest hit. It produces the Atlas S.U.V. and ID.4 electric vehicle in Chattanooga, Tenn., but depends on Mexican factories for models like the Jetta sedan. VW’s Audi division also produces in Mexico for U.S. customers and imports cars from Europe. Porsche, which is also part of Volkswagen, imports all its cars from Europe.
The tariffs could make it even harder for Volkswagen to sell more cars in the United States where it has long struggled to expand.
The tariffs could affect an array of vehicles that are popular in the United States and manufactured in Mexico. These include Chevy Silverado and GMC Sierra full-size pickups, made by General Motors; the Tacoma pickup truck that is manufactured at two Toyota plants in Mexico; and Dodge Ram pickups and Jeep Compass SUV’s, made by Stellantis.
Brian Kingston, the president of the Canadian Vehicle Manufacturers Association, who represents the Canadian operations of Ford, General Motors and Stellantis, said he was hoping to find a way to avoid the tariffs before they went into effect on April 2. If not, he said, the consequences could be dire. Kingston also said that the trade uncertainty the president has created may make manufacturers unwilling to invest in new factories in the U.S.
“This is a direct attack,” Prime Minister Mark Carney told reporters, adding that because of the tariffs the historic ties between Canada and the U.S. “are in the process of being broken.” Carney said that he will be talking with members of his administration on Thursday to determine what steps Canada will take in response, suggesting that further retaliatory tariffs against the United States are likely.
The Canadian government earlier announced measure for industries affected by U.S. tariffs, including tax deferrals and changes to unemployment insurance for workers left jobless. On Wednesday, Carney also announced additional money that could be used to help, including by moving auto parts production within Canada’s borders. “it is a significant action,” he said of the tariffs. “It’s entirely unjustified.”
The White House’s fact sheet on the tariffs quotes former Treasury Secretary Janet L. Yellen, who last year argued that the Biden administration’s tariffs on Chinese green energy imports wouldn’t cause inflation. “I don’t believe that American consumers will see any meaningful increase in the prices that they face,” Yellen said. However, Yellen added that those tariffs were targeted, and she has made the case that tariffs are taxes on consumers.
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Analysts at Wedbush Securities described the auto tariff announcement as a “hurricane-like headwind,” particularly for foreign automakers. In a note late Wednesday, they predicted that the policy could push up the average car price between $5,000 and $10,000, depending on the make and model of the vehicle and other characteristics, describing a 25 tariff rate generally as “almost an untenable head scratching number for the U.S. consumer.”
Shares of major carmakers kept tumbling in after-hours trading, after the White House said tariffs would also cover imported auto parts. General Motors is down nearly 7 percent, while Ford and Stellantis are both more than 4 percent lower since markets closed. Tesla’s stock inched up in post-market trading, but it is giving up some gains.
Those praising the president included Senators Bernie Moreno of Ohio and Eric Schmitt of Missouri, both of whom argued that Trump was keeping a promise to bring back auto manufacturing jobs to the U.S. “This is the market that everybody wants to be in. It’s where they want to sell their goods,” Schmitt said.
One Republican who outright opposed Trump’s new tariffs was Senator Rand Paul of Kentucky, who has frequently spoken out in defense of free trade and called the new 25 percent levies “a mistake.”
“I think it’s a terrible idea,” Paul said, adding that it will be “bad for the economy” and “raise the price of cars.” He pointed out that the markets already slumped before Trump signed the order. “Trade is good for our country and good for prosperity.”
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Other G.O.P. senators gave more nuanced reactions. Senator Jerry Moran of Kansas said he didn’t know enough about the auto industry to speak to the new tariffs, but he added that, generally, retaliatory tariffs target U.S. agribusiness and hurt farmers in his state.
“We are in such dire straits today, farmers are, that anything that makes us less competitive in the global economy is damaging to our future,” Moran said.
A British trade group, the Society of Motor Manufacturers and Traders, said today’s announcement was “not surprising but, nevertheless, disappointing.” Car manufacturing has declined in Britain in recent years but exports are still essential. The United States is Britain’s second-largest export market. Some automakers are likely to feel this more than others, like Jaguar Land Rover, whose luxury cars all need to be imported for sale in the US.
About 22 percent of vehicles in North America are produced in the supply chain between Michigan and Ontario, Candace Laing, president of the Canadian Chamber of Commerce, said in a statement. “Throwing away tens of thousands of jobs on both sides of the border will mean giving up North America’s auto leadership role,” she said. “This tax hike puts plants and workers at risk for generations, if not forever.”
The new tariffs could potentially wreak havoc on Mexico’s automotive industry. A pillar of the economy, the sector accounts for about 5 percent of Mexico’s gross domestic product and employs about 1 million people, according to Capital Economics. Mexico exported about $181 billion in vehicles and parts last year to the United States, up from $173 billion in 2023.
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“This will hurt us,” Mark Carney, the prime minister of Canada, said at the Ambassador Bridge in Windsor, Ontario, the center of Canada’s auto industry. He called the bridge “a symbol and a reality, up until now, of the tight ties between our two countries, ties of kinship, ties of commerce, ties that are in the process of being broken.”
Economists from Capital Economics offered mixed reviews of the tariffs after the announcement, saying in a research note: “In the long run, this could boost domestic investment and production. In the short run, however, it will be inflationary and, assuming that domestic producers respond by substantially increasing their own prices, could make new vehicles something of a luxury item.”
Including auto parts in the tariffs will be a huge shock to the auto industry, causing chaos in supply chains and quickly leading to production cutbacks and layoffs, analysts said.
Analysts at Bernstein said the tariffs would add as much as $75 billion per year to automaker costs, which they would have to pass on to car buyers.
To explain the rationale for the tariffs, Peter Navarro, the senior counselor to the president on trade and manufacturing, estimated to reporters that “less than 25 percent of the cars sold in America contain U.S. content.”
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Navarro singled out countries including Germany, Japan and South Korea, saying that they and other nations — through tariffs or other barriers to trade — had undermined the ability of U.S. companies to sell their cars abroad. “And it’s simply, simply not fair, and that’s going to change,” he said.
The three large U.S. automakers — Ford, G.M. and Stellantis — had been urging the Trump administration to exempt imported vehicles from Canada and Mexico, from tariffs. The three companies import many vehicles from those two countries and relatively few from other countries.
The White House said the tariffs would cover both imported automobiles and imported auto parts.
Ford Motor may be more insulated from the new tariffs because it makes more vehicles in the United States than any other automaker. Last year, about 80 percent of the vehicles it sold in the country were assembled in U.S. plants. By contrast, about 60 percent of the vehicles General Motors sold in the country were assembled domestically.
In addition to Japan, South Korea is a major exporter of cars to the United States. South Korean carmakers, including Hyundai and Kia, shipped 1.43 million vehicles to the United States in 2024. That made up more than half of the country’s total exports of 2.78 million vehicles.
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Hyundai had said on Monday that it would invest $21 billion in expanding manufacturing in the United States. President Trump praised the announcement, citing it as proof that his tariff policies were creating jobs.
Katherine Garcia, director of the Clean Transportation for All campaign at the Sierra Club, released a statement opposing the tariffs: “By imposing nonstrategic auto tariffs, Donald Trump will increase car prices for Americans and hurt working families. In order for tariffs to help boost domestic manufacturing, they must be accompanied by innovative investment in the US automotive industry.”
Flavio Volpe, the president of the Automotive Parts Manufacturers Association of Canada, said that if his members’ products were included under the tariff, the industry would likely shut down within a week throughout North America. “He is using a really blunt instrument,” Volpe said of President Trump. “One million cars in Canada a year are made by American manufacturers with 50 percent American parts and 55 percent of American raw materials, and he’s ready to push them off a cliff to make a point no one understands.”
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After months of threats, the White House unveiled plans on Wednesday to impose tariffs on automobiles imported to the United States, a plan that is likely to hit car companies across the European Union hard.
The move — which would place a 25 percent tariff on all cars not built in the United States — could ramp up pressure on Europe to respond with countermeasures.
European Union officials have already announced plans to allow tariffs that were instituted during President Trump’s first term to snap back into place, and have said they will place a new set of tariffs on a wide variety of American goods — from lingerie to soy products — by mid-April.
But those measures were a response to steel and aluminum tariffs. And their first wave, meant to hit American whiskey and motorcycles, was delayed to allow for more negotiating time and over fears of a stark American response that could crush European wine and Champagne exports.
The latest U.S. move may intensify the urgency for the European Union to retaliate. Automotive tariffs could squeeze an industry that is already vulnerable — especially in Europe’s biggest economy, Germany, which sends American consumers cars from companies like Volkswagen, Mercedes-Benz and BMW. That makes the tariffs a serious escalation in a trade war that has already left Europe scrambling.
“I deeply regret the U.S. decision to impose tariffs on European automotive exports,” Ursula von der Leyen, president of the European Commission, the executive arm of the European Union, said in a statement on Wednesday.
The European Union will “assess this announcement, together with other measures the U.S. is envisaging in the next days,” she added, and will “continue to seek negotiated solutions, while safeguarding its economic interests.”
The United States is the European Union’s largest export market for cars, accounting for nearly a quarter of all its exported vehicles.
In 2024, European automakers sent 38.4 billion euros’ worth of cars across the Atlantic, down 4.6 percent from the previous year, according to the European automobile makers association, ACEA.
Auto tariffs “will definitely be a big bummer for the recently returned optimism in Europe,” said Carsten Brzeski, the global head of macro for ING Research. In particular, they could “hurt German exports and increase chances of a continued stagnation.”
The biggest three German carmakers make up about 73 percent of the European Union’s automotive exports to the United States, according to the research firm JATO Dynamics.
And the United States is the most important export market for Germany’s auto industry. Nearly one of every three Porsches is exported to the United States, while one of every six BMWs is shipped there. Mercedes, Volkswagen and Audi (a subsidiary of the Volkswagen Group) have production sites in the United States and Mexico, but they would be hard hit by the increase in tariffs.
BMW warned this month that it expected that the growing trade conflicts would cost the company $1 billion this year.
“If you overdo it with tariffs, it sends a negative spiral to all market participants,” Oliver Zipse, the chairman of BMW, told Bloomberg. There are “no winners in that game.”
Cars are just one sector facing steep tariff increases. On top of the tariffs on steel and aluminum, the United States is planning to announce what the administration calls “reciprocal” tariffs next Wednesday.
The goal of those, the administration says, is to equalize tariff rates between various nations and America.
Maros Sefcovic, the trade commissioner for the European Commission, and Bjoern Seibert, the head of cabinet for the commission’s president, visited Washington on Tuesday to talk to their American counterparts — Howard Lutnick, the commerce secretary, and Jamieson Greer, the U.S. trade representative.
On Wednesday, European ambassadors heard an account of those meetings, according to three diplomats who spoke on the condition of anonymity because the talks were private.
The takeaway was that reciprocal tariffs could be in the double digits, two of the diplomats said — perhaps even 20 percent or higher, one added, though the figure was uncertain and the range of estimates wide. The tariffs would apply across the board for E.U. countries.
“The EU’s priority is a fair, balanced deal instead of unjustified tariffs,” Mr. Sefcovic said on X after his meetings this week. “We share the goal of industrial strength on both sides.”
Although the European Union has a relatively low tariff rate on average, the United States has signaled that it will take other factors into account when calculating reciprocal tariffs — including value-added taxes. Those are consumption taxes added to a good or service at each stage of production, and they are given back to the exporter if a product is exported. Mr. Trump has been a longtime critic of those policies.
Mr. Trump said while announcing the auto tariffs on Wednesday that the coming reciprocal tariffs would be “lenient” and that “we’re going to be very fair.” He offered few concrete details.
A correction was made on
March 26, 2025
:
An earlier version of this article misstated the value of the cars that European automakers sent across the Atlantic last year. It was 38.4 billion euros, not €38.4 million.
