US President Donald Trump’s announcement of a 25 per cent tariff on imported automobiles and auto parts – and the 25 per cent levy on steel and aluminium imports announced two weeks ago – mark a significant escalation in a global trade war brewing since he took oath in January.
The auto tariffs will come into effect on April 2 and those on auto parts a month later, on May 3.
Advertisement – Scroll to continue
A White House factsheet said the new tariffs will apply to imported passenger vehicles (i.e., sedans, SUVs, crossovers, minivans, and cargo vans) and light trucks, as well as parts like engines, transmissions, and powertrain and electrical components.
A significant aside is that there will be no exemption for Elon Musk’s Tesla.
“… what we’re going to be do is (placing) a 25 per cent tariff on all cars that are not made in the United States… if they’re made in the United States, it’s absolutely no tariff,” Trump declared.
These tariffs, he claimed, would lead to “tremendous growth” for the industry in America and a sharp increase in jobs and investment, claims that fuelled his re-election campaign last year.
Analysts disagree.
They believe it will lead to a temporary paralysis, affecting not just output and revenue for a cash-strapped government but also risk US jobs and, in addition, further strain ties with the rest of the world.
Trump’s Auto Tariffs Mean…
Car prices in the US – which imported nearly half of the 16 million sold last year, worth around $240 billion – will skyrocket, quickly, within two weeks, and sharply, by thousands of dollars.
The tariff will also apply to cars ‘assembled in the US’; i.e., vehicles put together in American factories with components manufactured elsewhere and then imported into the country.
And, to round it off, the tariffs could even affect cars ‘made in the US’ because, as CNN pointed out, there really isn’t an ‘all-American’ car – which is what Trump wants and hopes his tariffs will force into being – since auto manufacturers in the US rely on parts from Mexico and Canada.
For decades, the US auto industry – backed by a free trade agreement – has been able to treat the three countries as one, moving cars and auto parts freely between each other.
This means manufacturers could set up factories in Mexico, for example, build engines and transmissions there and then ship them to a factory in the US, for no additional cost.
That, though, could change after Trump begins taxing auto parts and, specifically, reviewing deals for free movement of these goods, which the BBC estimates is worth billions daily.
And then, don’t forget the 25 per cent levy on steel and aluminium, both used in manufacturing cars, will also lead to an increase in prices.
Overall, experts believe manufacturing costs could jump by $3,500 to $12,000 per car, leading to a fall in demand and, consequently, possible lay-offs, even in US factories to offset that drop.
According to the US Labour Department, over a million people work in building cars in that country and nearly a third work in auto assembly plants. It is these jobs – around half of which are not unionised – that will most likely be the first to go, as experts predict, once the tariffs hit.
Trump’s Auto Tariffs Will Affect…
Pretty much every foreign car manufacturer exporting cars, or auto parts, to the US, including big-hitters like Toyota (the world’s largest) and Honda, and those from the European Union.
Retaliation isn’t forthcoming just yet, with other countries perhaps waiting and watching to see if Trump, as he has in the past, rolls back his announcements.
They have, however, condemned the President’s decision. European Commission President Ursula von der Leyen underlined her belief that tariffs “are bad for businesses, worse for consumers” and warned it will affect “deeply integrated supply chains” worldwide.
Japanese Prime Minister Shigeru Ishiba has said his government is working on “appropriate measures”, pointing out his country has made “significant investments” in the US.
And Canada’s Mark Carney called it a “direct attack” on his country and the car industry.
The India Impact
It will also affect Indian manufacturers; shares of Tata Motors, for example, plummeted six per cent early Thursday morning. The company owns the Jaguar Land Rover brand for which the US is a key market. In 2024 over 20 per cent of its total sales were from the United States.
Auto component manufacturers like Samvardhana Motherson could also be hit.
The Indian auto industry is not as exposed to the American market as those from other Asian countries – like Japan, China, and South Korea – or the EU, but there is still cause for concern.
Last year Indian companies exported over $2 billion worth of auto parts to the US.
There is a flip side, though, as far as India is concerned. Passenger car exports, for example, are insignificant at $8.9 million last year and given Indian companies focus on controlling costs, its car prices could be appealing to the American market even with the 25 per cent tariff added.