Starting April 2, the United States will impose a permanent 25% tariff on all imported foreign cars and light commercial vehicles. This move, announced by President Donald Trump from the Oval Office on March 26, aims to encourage car manufacturing within the U.S. It remains unclear whether auto parts will be included in this new 25% tariff.
“This will stimulate growth like never before,” said Trump, emphasizing that cars built within the U.S. will not be subject to any new taxes.
Trump’s Projections and market reactions
According to Trump’s calculations, the new tariff could generate between $600 billion and $1 trillion in revenue for the U.S. over the next two years, funds that he intends to use to reduce the country’s substantial foreign debt. However, White House staff secretary Will Scharf, who stood beside Trump during the announcement, suggested a more conservative estimate of around $100 billion in additional revenue.
While the tariff is designed to promote domestic car production, they could also strain the finances of automakers reliant on global supply chains. This would likely result in higher costs for American consumers.
Financial markets reacted negatively to the announcement. Fears of an escalating trade war triggered a drop on Wall Street after three consecutive days of gains. Stocks of the three major U.S. car manufacturers—Ford, General Motors, and Stellantis—declined significantly: GM fell by 6.6%, Ford by 3.1%, and Stellantis by 2.9%.
Even Tesla saw a decline of 1.28%, adding to its already challenging year, with shares down 32% since January. Tesla CEO Elon Musk warned that the additional tariffs would have a “significant” impact on the company’s production costs.
The European Automobile Manufacturers’ Association (ACEA) urged Trump to consider the broader impact of the tariffs on global automakers and U.S. manufacturing. ACEA’s Director General, Sigrid De Vries, stated:
“European car manufacturers have invested in the United States for decades, creating jobs, stimulating economic growth in local communities, and generating substantial tax revenues for the U.S. government. We urge President Trump to reconsider the negative impact of these tariffs, not only on global automakers but also on domestic U.S. manufacturing.”
According to ACEA, between 50% and 60% of European car production is exported to the U.S. annually.
European Union’s response
In response, the European Union is preparing countermeasures. European Commission President Ursula von der Leyen expressed her disappointment:
“I deeply regret the U.S. decision to impose tariffs on EU automobile exports. Tariffs are taxes—bad for businesses, worse for consumers in both the U.S. and the EU. The EU will continue to seek negotiated solutions while safeguarding its economic interests.”
Currently, about half of the cars sold in the U.S. are domestically produced. Among the imported vehicles, roughly 50% come from Mexico and Canada, with Japan, South Korea, and Germany also being significant suppliers.
