3 days ago
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The president has confirmed a 25 per cent tariff on all new vehicles and auto parts imported into the United States in an attempt to boost its domestic industry, which largely opposed the move.
President Donald Trump has announced all new vehicles and automotive components imported in the United States will be slapped with a minimum 25 per cent tariff from April 2, 2025.
Analysts predict the move will push the price of new vehicles up considerably for consumers by increasing operating cost by billions for United States (US) car manufacturers.
It could have a knock-on effect around the world – and in Australia – as it reshapes supply lines and impacts Europe, South Korea and Japanese auto businesses.
By applying to all vehicle imports – not only new cars – the tariffs could also impact the global second-hand import market, with higher prices in the US potentially reducing demand and seeing more shipped to places including Australia.
The White House announcement also confirmed Canada and Mexico will be included and from April 2, ignoring domestic car makers’ calls for an exemption from the tariffs.
Joint discussions were held last month between Mr Trump and the CEOs of Ford, General Motors (GM) and Stellantis (owner of iconic US brands including Chrysler, Dodge and Jeep), with the US president granting a 30-day reprieve.
Hopes of an extension of the reprieve are now over with confirmation of the April 2 start date.
No official statements have yet been issued by the US car makers.
The US is the world’s second largest auto market in terms of sales behind China, with almost half of the 15.9 million new vehicles sold in the US last year imported.
This spells bad news for European, Japanese and South Korean auto industries which send millions of vehicles to the US each year, with Europe’s exports worth $US41 billion ($AU65.25 billion) in 2024 alone.
The move is designed to bolster the US auto manufacturing industry by encouraging car makers and suppliers to set up factories there.
In anticipation of the announcement, South Korean brand Hyundai said it would spend $US21 billion ($AU33.44 billion) on expanding its US manufacturing base.
More than half of South Korea’s 2.78 million vehicle exports in 2024 were to the US.
“Anybody who has plants in the United States, it’s going to be good for,” Mr Trump said when making the announcement.
The move won’t impact US electric car maker Tesla, which makes all of its US-showroom models in Texas and California, while of the main manufacturers, Ford leads with around 80 per cent of its line-up US made.
The inclusion of parts increases the impact of the tariffs beyond a vehicle’s final assembly location.
Peter Navarro, senior counsellor to Mr Trump on trade and manufacturing, told reporters, “Less than 25 per cent of the cars sold in America contain US content … and it’s simply, simply not fair, and that’s going to change.”
The inclusion of Canada and Mexico further exacerbates the issue for US car makers, given the three countries’ auto industries are strongly interwoven.
At the initial announcement in March 2025, Stellantis said separating the supply chains across Canada, Mexico and the US would take considerable time – making the tariffs’ rapid introduction increase immediate costs.
President of the Automotive Parts Manufacturers Association of Canada, Flavio Volpa, said the tariffs could see Canada’s industry shut down in a matter of days.
“One million cars in Canada a year are made by American manufacturers with 50 per cent American parts and 55 per cent of American raw materials, and he’s [Mr Trump] ready to push them off a cliff to make a point no one understands,” said Mr Volpa in The New York Times.
Figures reported in The New York Times from US firm, Capital Economics, put Mexico vehicle and auto parts imports at $US181 billion ($AU288 billion) in 2024.
“In the long run, this could boost domestic investment and production,” said a statement from Capital Economics.
“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.”
It also said Bernstein analysts forecast potential cost increases for the three biggest US car makers by around $US75 billion ($AU119,4 billion) annually.
Another firm, Anderson Economic Group, was quoted by The Guardian saying the tariffs – notably by their inclusion of Canada and Mexico – risked pushing up new car prices for US consumers by as much as $US12,000 ($AU19,110).
This could also lead to significant job losses across the supply chain, administrative and retail automotive sectors.
The stocks of all three major US car makers fell on the news.
