Trump imposes 25% tariffs on all foreign-made cars and parts

US carmakers and their global rivals were rocked on Wednesday by President Donald Trump’s announcement that he would impose 25% tariffs on all vehicles and foreign-made auto parts imported into the US.

The new levies, if kept for an extended period, could add thousands of dollars to the cost of an average US vehicle purchase and impede car production across North America.

That will be because of the intertwined manufacturing operations developed by carmakers across Canada, Mexico and the US over the past three decades. Nearly half of all cars sold in the US last year were imported, research firm GlobalData says.

In response to the news, shares of General Motors slumped 8% in aftermarket trading. Shares in Ford and US-traded shares of Chrysler-parent Stellantis fell about 4.5% each. In Asia, shares in Toyota Motor, Honda Motor and Hyundai Motor all fell between 3% and 4%. Shares in Tesla, which makes all the cars sold in the US locally but with some imported parts, were down 1.3%.

Trump said the duties announced on Wednesday could be a net neutral or even good for Tesla, adding that its CEO and his close ally, Elon Musk, did not advise him regarding car tariffs.

In a post on X after the news, Musk said the tariffs would also affect Tesla. “This will affect the price of parts in Tesla cars that come from other countries,” he wrote in another post on X. “The cost impact is not trivial.” The companies did not immediately return emails seeking comment.

Trump’s tariffs and threats to impose them have sowed uncertainty in businesses and roiled global markets since he returned to the White House in January. On Wednesday, Trump reiterated that he expected the car tariffs to prompt carmakers to boost investment in the US, instead of Canada or Mexico.

Autos Drive America, a group representing major foreign carmakers such as Honda, Hyundai, Toyota and Volkswagen, said the “tariffs imposed today will make it more expensive to produce and sell cars in the US, ultimately leading to higher prices, fewer options for consumers, and fewer manufacturing jobs in the US”.

Carmakers in North America have largely enjoyed free trade status since 1994. Trump’s 2020 US-Mexico-Canada Agreement (USMCA) imposed new rules designed to spur regional content production.

After clamping tariffs of 25% on Mexico and Canada in early March, Trump allowed a one-month reprieve for vehicles produced in compliance with the terms of his USMCA, which benefited US companies. The new rules do not extend that reprieve.

“Companies that have invested hundreds of millions and billions of dollars on plants in Canada and Mexico will likely see their profits cut dramatically over the next few quarters, if not into a couple years,” said Sam Fiorani, analyst at AutoForecast Solutions.

“We’re going to look at adjusting our sales and production forecasts because this will throw everything into chaos.”

The White House said that 25% tariffs on automotive parts imported to the US would take effect no later than May 3, taxing key items such as engines, transmissions, power train parts and electrical components.

Importers of cars under the USMCA would get the chance to certify their US content so that only non-US content was taxed, the White House said.

Before the unveiling of the new tariffs, Cox Automotive, an automotive services provider, predicted they would add $3,000 (R54,704) to the cost of a US-made vehicle and $6,000 (R109,398) on vehicles made in Canada or Mexico, without exemptions.

If tariffs go through, by mid-April Cox expects disruption to “virtually all” North American vehicle output, leading to 20,000 fewer vehicles a day, or a hit of about 30% to production.

The United Auto Workers union, which represents factory workers at Big Three Detroit carmakers, praised Trump’s action.

“With these tariffs, thousands of good-paying blue collar auto jobs could be brought back to working-class communities across the US within a matter of months, simply by adding additional shifts or lines in a number of underutilised auto plants,” UAW President Shawn Fain said in a statement.

Reuters