Trump’s announcement of 25% tariffs on foreign auto imports sends markets on a bumpy ride

According to a Reuters report, U.S. President Donald Trump announced on March 26th that he would impose a 25% import tariff on imported automobiles not manufactured in the United States, fulfilling his long-standing threat to levy new tariffs on imported cars. This tariff, set to take effect next week, will undoubtedly further exacerbate already strained trade relations between the U.S. and its allies.

Trump confirmed that, starting April 3rd, the U.S. would impose a 25% tariff on imported complete vehicles, a tariff added on top of existing ones. Currently, the basic U.S. tariff on automobile imports is 2.5%. The new tariffs will apply to cars assembled in countries with free trade agreements with the United States, such as Canada, Mexico, and South Korea. These countries, as well as Japanese and European automakers from Germany, Italy, and the United Kingdom, will be severely affected by the new measures.

The new tariffs will also extend to major automobile component imports, including engines, transmissions, powertrain parts, and electrical components. According to Trump's statement, the component tariffs could take effect as early as May 3rd, with the specific timing to be further announced in the Federal Register. The new plan provides limited exemptions for vehicles and components that meet the US-Mexico-Canada Agreement (USMCA) rules of origin, but only to the extent of the American-produced portion of the vehicle or component.

For example, a truck manufactured in Mexico with 45% of its components originating from the United States would face a 25% tariff on the remaining 55% of its value. The same rule applies to automotive components that meet USMCA rules, with only the non-U.S. produced parts being subject to tariffs. Determining the exact percentage of content could be challenging. While the U.S. Department of Commerce and U.S. Customs and Border Protection are tasked with establishing a process for determining non-U.S. content, automotive components that comply with USMCA will continue to be duty-free until the procedure is in place. A specific timeline for this process has not yet been provided.

The basis for this new tariff is a national security investigation into automobile imports conducted during Trump's first term under Section 232 of the Trade Expansion Act of 1962. The Department of Commerce's investigation concluded that the increased market share of imported automobiles poses a threat to national security because it undermines the U.S. industrial base and limits the ability of domestic automakers to develop advanced technologies for military applications.