The announcement by the President of the United States, Donald Trump, to impose 25% tariffs on all cars shipped to the United States has unleashed a wave of uncertainty and questions about the future of the automotive industry in the region.
But what is the impact of this measure recently announced by Donald Trump? Below we explain the scope of these new tax impositions.
What are the auto tariffs announced by Donald Trump?
On April 3rd at 12:01 am (Miami time), a 25% tariff on all cars imported into the United States would take effect, according to the decision announced by Donald Trump. In the president’s own words: “Frankly, the friend has been many times much worse than the enemy. And what we’re going to do is impose a 25% tariff on all cars that are not made in the United States. If they are made in the United States, there is absolutely no tariff.”
Why did Donald Trump impose tariffs on cars?
With this measure, Trump sought to boost the U.S. automotive industry and “make it grow.”
From his perspective, the existing free trade agreements (particularly the one that previously existed with Canada and Mexico under the North American Free Trade Agreement –NAFTA, later replaced by the USMCA) had allowed manufacturers to treat Canada, Mexico, and the United States as “a single country, with no tariffs between them.”
For Trump, this is not enough, and he believes neighboring countries are taking advantage of the United States’ open trade policy.
In addition to finished cars, this policy would include 25% tariffs on car parts such as engines and transmissions, which would be applied “no later than May 3rd,” according to the official decree.
Do the tariffs affect Mexico?
It is worth noting that parts coming from Canada and Mexico that meet the requirements of the United States–Mexico–Canada Agreement (USMCA) would be exempt from these tariffs until the U.S. Customs and Border Protection establishes a system to apply them to non-U.S. parts.
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How do auto tariffs affect the economy and the U.S. automotive industry?
Impact on GDP, employment, and prices
Various sources cited by Statista indicate that the permanent implementation of Donald Trump’s tariffs could lead to a 0.4% decrease in the U.S. GDP. Of that total, 0.3% would correspond to the 25% tax on imports from Canada and Mexico, while 0.1% would come from the 10% on goods from China. Likewise, there would be a negative effect on capital formation and on pre-tax wages.
On the other hand, automakers would almost certainly pass on the additional costs to consumers, since relocating the supply chain is very expensive and cannot be done overnight. This means that consumer prices, especially for vehicles manufactured (or completed) abroad, would rise considerably, affecting the budgets of U.S. households.
Who supports the tariffs and why?
The president of the United Auto Workers union, Shawn Fain, endorsed the new tariffs:
“We applaud the Trump administration for stepping up to end the free trade disaster that has devastated working-class communities for decades (…) Ending the race to the bottom in the automotive industry begins with fixing our broken trade agreements, and the Trump administration has made history with today’s actions.”
From the perspective of unionized workers, the tariffs could translate into greater incentives to manufacture cars in the United States, boosting employment in the national manufacturing sector. However, detractors warn that higher prices for parts and vehicles could lead to a drop in overall sales and eventually reduce the competitiveness of the U.S. industry in the global market.
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How have the markets reacted to car tariffs?
The reaction of the shares of major car companies was immediate. According to figures released after the market closed, General Motors (GM) fell more than 7% in after-hours trading, while Ford (F) and Stellantis (STLA) dropped around 4%.
Hours before the announcement, White House Press Secretary Karoline Leavitt confirmed that Trump would sign the Executive Order for automotive industry tariffs. News of the imminent tariff announcement caused immediate turbulence in financial markets. The S&P 500 fell 0.8%, dragging with it a quarter that is already shaping up to be the worst since 2023. The Dow Jones slipped 0.49% to 42,379 points, and a megacap index compiled by Bloomberg lost 2.3%. The Russell 2000, which includes small and medium-sized companies, fell 0.7%.
Trade uncertainty often discourages long-term investment and creates instability in the demand for automakers’ stocks. This volatile environment affects not only U.S. manufacturers but also international carmakers with plants in Mexico and Canada.
Key data on the trade of cars and auto parts
To fully understand the impact of car tariffs, it is important to review some figures on the trade flow between the United States and its main partners:
- U.S. car imports
- In 2023, the U.S. imported about $45 billion worth of cars from Mexico, compared to $35 billion from Canada and $3 billion from China.
- Origins of vehicles sold in the U.S. in 2024
- 61% of the light vehicles sold in the United States were manufactured locally, while Mexico ranked as the second-largest supplier at 13.6%.
- Trade in automotive parts
- Mexico leads as the main partner of the United States in auto parts trade. In 2024, the U.S. imported about $81.2 billion worth of Mexican auto parts, while exporting about $38.8 billion to Mexico.
- Tariff and treaty variations
- There is a trend for fewer auto parts and vehicles imported from Mexico and Canada to be tariff-free under the current USMCA, compared to the original NAFTA. For example, in 2019, 99.7% of vehicles imported from Mexico were tariff-exempt, but in 2024 that percentage dropped to 92.1%.
- U.S. revenue projections
- The Trump administration estimated that a universal 10% tariff could raise an additional $2.95 trillion; however, if the tariff were 25%, revenues could drop to $2.62 trillion due to the reduction in imports.
How do Donald Trump’s tariffs affect the trade relationship with Canada and Mexico?
The USMCA established stricter rules of origin for a vehicle to be considered tariff-free, increasing the required percentage of North American components. Even so, Trump’s initiative to impose 25% on all foreign cars threatens to alter the expected dynamics:
- Mexico as a production hub:
Data from 2024 indicates that Mexico remains the main source of vehicles imported by the United States, with about $78.5 billion in value. Numerous popular models—including pickups and SUVs—are fully or partially manufactured in Mexican territory. - Canada and its relevance:
The United States imported around $31.2 billion in Canadian cars (2024), while exporting only $5.3 billion to Mexico in the same category. Although Canada remains a key partner, the trade imbalance has tended to grow due to cross-border production by Detroit’s big automakers (General Motors, Ford, and Stellantis). - Increase in the trade deficit:
Statista indicates that the U.S. light vehicle trade balance with Mexico remained negative between 2008 and 2024. This is due to Mexican industrial clusters that have attracted production aimed at export.
What do American consumers think of car tariffs?
The impact on consumers is evident in surveys cited by Statista. About two-thirds of Americans believed that “increasing tariffs on foreign goods would raise prices in the country.” In addition, households could face an increase of about $1,500 in annual expenses due to a hypothetical “universal tariff.”
Among the goods most concerning due to rising prices are:
- Materials and equipment for U.S. companies ($610 additional per household).
- Cars, motorcycles, and recreational boats ($220).
- Oil, fuels, food, electronics, furniture, among others (Statista, “U.S. impact of Trump’s proposed tariff on household expenses 2024”).
This perception of increased costs directly affects the decision to purchase new vehicles, which in turn can reduce demand and impact production and employment in the automotive industry.
Source: Statista, “U.S. estimated impact of Trump’s proposed tariffs 2025”
