Is Trump's 25% car tariff about to drive the auto industry off a cliff?

Will Trump's 25 per cent car tariff drive the auto industry into crisis as global leaders threaten retaliation and prices soar for consumers?

A global trade showdown is brewing after US President Donald Trump slapped a 25 per cent tariff on imported cars and auto parts, sending shockwaves through markets and sparking threats of retaliation from world powers.  

 

Germany, Japan, and Canada have condemned the move, warning of price hikes, job losses, and economic fallout. Canadian Prime Minister Mark Carney even declared, “The old relationship is over,” as experts predicted thousands of dollars in extra costs for car buyers.  

 

With automakers, governments, and investors on edge, is this the start of a full-blown trade war?  

 

Global auto players brace for impact 

The US tariff, set to take effect from April 3, will apply to foreign-made cars, light trucks, and auto parts, a move that could shake up global supply chains and drive up car prices across the board.  

 

 

Experts warn that American consumers will bear the brunt of the cost surge. Italian luxury carmaker Ferrari has already announced price hikes of up to 10 per cent on models sold in the US, effective next week.  

 

Global stock markets also reacted swiftly, with shares in Toyota, Hyundai, Mercedes, and other automakers tumbling. On Wall Street, General Motors and Ford stocks fell, dragging down major US indexes.   

 

 

EU, Canada, and Japan consider retaliation 

In addition, world leaders are already plotting their next moves. French Finance Minister Eric Lombard called for an aggressive response, saying, “The only solution for the European Union is to raise tariffs on American products.”

 

Carney, who previously labelled the tariffs a “direct attack” on Canadian workers, convened an emergency meeting to discuss countermeasures.  

 

Meanwhile, Trump doubled down, warning on social media that Canada and the EU could face “far larger” penalties if they joined forces against the US.  

 

Consumers face higher car prices 

For car buyers, the financial hit could be steep. JPMorgan analysts estimate that the new tariffs could add $4,000 to $5,300 to the price of an average vehicle. The impact will depend on the automaker:   

- Ford manufactures 82 per cent of its US sales domestically.   

- Stellantis (owner of Chrysler, Jeep, and Dodge) makes 71 per cent of its US-market vehicles in the US.   

- General Motors has just 53 per cent of its production in the country, making it highly vulnerable to price hikes.  

 

The American Automotive Policy Council also warned that tariffs must be carefully implemented to prevent price surges and protect industry competitiveness. Canadian Vehicle Manufacturers’ Association President Brian Kingston echoed similar concerns, stating that higher costs will make the industry less competitive.  

 

Trump’s tariffs build on previous trade actions 

Unlike past emergency tariffs on steel and aluminium, latest auto tariffs stem from a government investigation completed in 2019.  

 

The White House argues that half of the cars sold in the US are already manufactured domestically, with the remainder primarily imported from Mexico, Canada, Japan, South Korea, and Germany.  

 

Trump trade adviser Peter Navarro defended the decision, accusing “foreign trade cheaters” of turning US manufacturing into a “low-wage assembly operation for foreign parts.”

 

He specifically targeted Germany and Japan, saying they reserve high-value auto production for themselves while outsourcing lower-end work to the US.  

 

USMCA and trade exemptions   

However, not all vehicles will face the full tariff.  The White House clarified that cars qualifying under the US-Mexico-Canada Agreement (USMCA) may receive a lower tariff rate based on their US-made content.

 

Auto parts that comply with USMCA rules will remain tariff-free, while officials establish a process to assess non-US components.  

 

Mexican President Claudia Sheinbaum called the tariffs a “violation of the North American trade deal”, but indicated Mexico would hold off on retaliation until April.  

 

Market uncertainty and future tariffs 

Trump’s latest tariff move has shaken financial markets and dampened consumer confidence.

 

The president insists tariffs will revitalise US industry and boost government revenue. But trade analysts warn that targeting imported cars could ‘devastate’ key US allies and disrupt global supply chains.  

 

Wendy Cutler, vice-president of the Asia Society Policy Institute, warned that tariffs on automobiles would have “a devastating impact” on major US trading partners.

 

Meanwhile, Oxford Economics analyst Abby Samp suggested that automakers might offer to invest more in US factories as a bargaining chip to negotiate lower tariffs.

 

And Trump isn’t stopping with cars—he is also considering tariffs on pharmaceuticals, semiconductors, and lumber as part of a broader economic strategy.  

 

[With AFP inputs]