DETROIT/WASHINGTON, March 26 (Reuters) – The U.S. auto industry faced significant changes following President Donald Trump’s announcement of a 25% tariff on all imported vehicles and foreign-made auto parts entering the United States. These tariffs could increase the cost of an average U.S. vehicle purchase by thousands of dollars and disrupt car production across North America due to the interconnected manufacturing operations developed over the last three decades among Canada, Mexico, and the United States.
According to research firm GlobalData, nearly half of all cars sold in the U.S. last year were imports. Trump mentioned that these duties might be neutral or even beneficial for Tesla, noting that Tesla’s CEO Elon Musk, who is a close ally, did not advise him regarding the tariffs. However, Musk posted on X that the tariffs would indeed affect Tesla, stating, “This will affect the price of parts in Tesla cars that come from other countries.” He further added, “The cost impact is not trivial.”
Companies did not immediately respond to requests for comment. Trump’s tariffs have created uncertainty in businesses and unsettled global markets since his return to the White House in January. He reiterated that he expects these tariffs to encourage automakers to invest more in the United States rather than in Canada or Mexico.
Since 1994, automakers in North America have benefited from free trade. Trump’s 2020 U.S.-Mexico-Canada Agreement (USMCA) introduced new rules to boost regional content production. Following the imposition of 25% tariffs on Mexico and Canada in early March, Trump granted a one-month reprieve for vehicles complying with USMCA terms, favoring American companies. The new rules do not extend this reprieve.
Analyst Sam Fiorani from AutoForecast Solutions stated, “Companies that have invested hundreds of millions and billions of dollars on plants in Canada and Mexico will likely see their profits cut dramatically over the next few quarters, if not into a couple years.”
The White House announced that 25% tariffs on automotive parts imported to the U.S. would take effect no later than May 3, affecting items such as engines, transmissions, powertrain parts, and electrical components. Importers under the USMCA will have the opportunity to certify their U.S. content so that only non-U.S. content is taxed.
Cox Automotive predicted that these tariffs could add $3,000 to the cost of a U.S.-made vehicle and $6,000 to vehicles made in Canada or Mexico without exemptions. If the tariffs proceed, Cox expects disruptions to “virtually all” North American vehicle output by mid-April, leading to 20,000 fewer vehicles produced daily, or a 30% reduction in production.
The United Auto Workers union praised Trump’s action, stating that these tariffs could bring thousands of well-paying blue-collar auto jobs back to the United States within months.
— news from Reuters