Trade war intensifies as Trump slaps 25% tariffs on car imports

The global auto industry braces for disruption after President Donald Trump officially confirmed his plan to impose 25% tariffs on imported vehicles and car parts.

Critics say this could destabilize supply chains, raise consumer prices, and strain international trade alliances. Even a close ally of Trump, Elon Musk, warned on his social media channel X about the impact on pricing.

The tariffs, set to take effect on April 2nd for finished vehicles, apply to all imports outside the United States, with partial exemptions for North American partners under the United States-Mexico-Canada Agreement (USMCA).

In that case, automakers must ensure that 75% of a vehicle’s content by value originates from North America when the model is built in Mexico or Canada.

The measure will also apply to car parts, but only as of one month later. The White House framed the decision as a national security measure and cited declining US production and an overreliance on foreign-made components as justification.

“These tariffs are vital to protecting America’s automobile industry and national security,” the White House said in its official press release. Trump echoed that message, promising the tariffs would lead to “tremendous growth” and re-shoring of manufacturing jobs. But the backlash has been swift—and global.

‘Bad for businesses’

European Commission President Ursula von der Leyen condemned the decision, calling it “bad for businesses, worse for consumers.” She warned that the EU would “safeguard its economic interests,” hinting at potential retaliatory measures.

Japanese Prime Minister Shigeru Ishiba said his government is considering “all options” in response, calling the tariffs a serious threat to economic relations.

Japan, the second-largest exporter of cars to the US, has much to lose. Japanese automakers Toyota, Honda, and Nissan saw share prices fall sharply following the announcement.

In the UK, Mike Hawes of the Society of Motor Manufacturers and Traders called the move “disappointing” and said it could “hurt both UK and US manufacturers and consumers.” Hawes urged both governments to reach a deal that avoids a damaging trade rift.

Production shutdowns and price hikes

Following the announcement, industry leaders warn of economic whiplash. Even Elon Musk, a vocal Trump supporter, acknowledged the tariffs would raise Tesla’s production costs, saying the impact on imported parts is “not negligible.”

Meanwhile, analysts predict that production shutdowns and price hikes are likely. The Anderson Economic Group estimates that tariffs on Mexican and Canadian parts alone could increase the cost of a vehicle by $4,000 to $10,000.

Only Ford’s share prices profited from a slight uptick on Wall Street, as it imports fewer vehicles than its compatriots General Motors and Stellantis.

Trump’s administration insists the move is about leveling the playing field and rebuilding domestic capacity. According to the White House, only 25% of the content in cars sold in the US is genuinely “Made in America.”

Permanent measure

While the White House touts studies showing tariffs can strengthen domestic industries without fueling inflation, most experts and trading partners remain skeptical.

With half of all cars sold in the US being imports—and many domestically assembled vehicles relying on global parts—these argue that the tariffs risk doing more harm than good. Trump promised that the tariffs would be “permanent,” aggravating distress for the global car industry.

Since Trump took office, the tariff threat has been looming. Several carmakers started preparing for the now-confirmed implementation. While presenting its financial results, BMW announced a 1 billion dollar provision to avoid passing on the extra cost to end customers. 

The Volkswagen Group remained optimistic, awaiting a U-turn or an exception for carmakers already assembling in the US. It had not yet calculated an effect for its 2025 outlook.

Hyundai announced an investment of $21 billion in the US, which will be allocated to vehicle production, component manufacturing, energy infrastructure, and a steel plant.

As for EVs, only the following foreign-brand cars are exempt from the excess tariff: Polestar 3, Genesis GV70, Acura ZDX, Kia EV9, Mercedes EQE SUV, Mercedes EQS SUV, Nissan Leaf, Volkswagen ID.4, and Volvo EX90.