President Trump’s new trade policy threatens global car trade, increases costs, and could disrupt production.
US President Donald Trump has announced a significant policy shift, imposing a 25% tariff on car imports and car parts beginning 2 April 2025. This new measure is part of Trump’s ongoing efforts to boost American manufacturing by encouraging domestic production. According to Trump, the tariffs will promote “tremendous growth” within the industry, resulting in more jobs and investment in the US.
However, experts warn that the move could temporarily halt major car production in the US, raise consumer prices, and sour relations with international allies. In 2024, the US imported approximately 8 million cars, valued at about $240 billion (£186 billion), with key suppliers being Mexico, South Korea, Japan, Canada, and Germany.
The tariffs are expected to disrupt supply chains, particularly in North America, where the automotive sector heavily relies on cross-border trade. However, Canada and Mexico’s car parts are temporarily exempt from the new tariffs, pending a review by US authorities. This trade measure is likely to affect many major car companies, including General Motors, Stellantis, and Tesla, with shares of these companies dropping following the announcement.
While tariffs can protect domestic industries, they also result in higher costs for businesses that depend on imported components. Analysts predict that car prices in the US could rise by up to $10,000, particularly for vehicles with parts sourced from Canada and Mexico. Trump maintains that the tariffs are “permanent” and justified, emphasising that cars manufactured in the US will not be taxed.
The decision has prompted a strong response from international leaders. Japan, the second-largest car exporter to the US, has threatened retaliation, and the UK has voiced concerns about the impact on both economies. Canadian Prime Minister Mark Carney described the tariffs as a “direct attack” on the Canadian automotive industry, while European leaders have hinted at a possible response.
In addition to the tariffs, Trump’s administration is also focusing on reshaping the global car manufacturing landscape, with actions such as pressuring foreign firms to shift production to the US. Despite the potential economic disruption, Trump sees the policy as a win for American workers, particularly as US companies like Hyundai have pledged significant investments in the country.
For the US car market, the new tariffs represent a critical juncture, as the country balances the desire for job creation with the risks of increasing consumer prices and damaging global trade relations.
