President Donald Trump has announced new import taxes of 25% on cars and car parts coming into the US.
Trump said the latest tariffs would come into effect on 2 April, with charges on businesses importing vehicles starting the next day. Taxes on parts are set to start in May or later.
The president said the measure would lead to “tremendous growth” for the industry, promising it would spur jobs and investment in the US.
But analysts have said the move is likely to lead to the temporary shutdown of significant car production in the US, increase prices, and strain relations with allies.
Trump’s latest move threatens to upend global car trade and supply chains.
The US imported about eight million cars last year – accounting for about $240bn (£186bn) in trade and roughly half of overall sales.
Mexico is the top supplier of cars to the US, followed by South Korea, Japan, Canada and Germany.
Many US car companies have operations in Mexico and Canada as well, set up under the terms of the longstanding free trade agreement between them.
The new tariffs on car parts from Canada and Mexico are exempt while US customs and border patrol set up a system to assess the duties, the White House said. The neighbouring countries see goods worth billions cross borders each day.
Ahead of the announcement on Wednesday, shares in General Motors slid roughly 3%, while Stellantis – the owner of Jeep and Chrysler – fell 3.6%.
In a post on X, Elon Musk said Tesla would be affected by the measures. “The tariff impact on Tesla is still significant,” he said.
Tariffs are taxes charged on goods imported from other countries.
The companies that bring the foreign goods into the country pay the tax to the government. Firms may choose to pass on some or all of the cost of tariffs to customers.
Trump’s plan for car tariffs is his latest in his wider drive to protect American businesses and boost manufacturing within the US.
But while the measures can protect domestic businesses, they also raise costs for businesses reliant on parts from abroad.
Analysts have estimated that tariffs on parts just from Canada and Mexico could lead to costs rising by $4,000-$10,000 depending on the vehicle, according to the Anderson Economic Group.
Trump told reporters the tariffs would be “permanent” and reiterated his reasoning that: “If you build your car in the United States there is no tariff.”
The prime minister of Japan, the world’s second largest exporter of cars, said it would put “all options on the table” in response to the tariffs.
Shares in Japanese carmakers – including Toyota, Nissan, Honda – all fell on Thursday. These new tariffs are expected to come in on the same day as other countries are set to impose penalties on the US in retaliation against previously announced taxes.
It is not clear how the car tariffs might affect those plans.
The US was the top sales market for British-based Jaguar Land Rover last year, exceeding sales in the UK and China.
UK Chancellor Rachel Reeves told the BBC the new tariffs would be “bad for the UK, and bad for the US as well”, adding the UK was involved in “extensive” talks to avoid them being imposed in Britain.
For the UK, the US is the second largest car export market after the EU, according to the Society of Motor Manufacturers and Traders (SMMT).
Its chief executive Mike Hawes urged the UK and US governments to “come together immediately and strike a deal that works for all”. Canadian Prime Minister Mark Carney called Trump’s announcement a “direct attack” on his country and its car industry.
European Commission president Ursula von der Leyen said the bloc would consider the measures before any potential response.
Early on Thursday, Trump threatened “far larger” tariffs if the European Union and Canada worked together to do what he described as “economic harm” to the US.
The car industry is already grappling with the expanded tariffs on steel and aluminium.
Ford and General Motors among other major car firms have urged Trump to exempt the industry from any further duties.
A 2024 study by the US International Trade Commission predicted that a 25% tariff on imports would reduce imports by almost 75%, while increasing average prices in the US by about 5%.
White House officials said it wanted US workers make more parts, not simply assemble them, and have maintained their action is pushing firms to relocate.
A day before the latest tariffs, South Korea’s Hyundai announced it would invest $21bn (£16.3bn) in the US and build a new steel plant in Louisiana.
Trump hailed the investment as a “clear demonstration that tariffs very strongly work”.
United Autoworkers union leader Shawn Fain, who had opposed Trump in the election, said the president was “stepping up to end the free trade disaster that has devastated working class communities for decades”.
Elsewhere, head of trade group the American Automotive Policy Council, Matt Blunt, said car makers were “committed” to Trump’s vision of “increasing automotive production and jobs in the US”. But American Automakers said the tariffs must avoid raising prices for customers.–BBC
