Despite President Donald Trump’s campaign promise to impose heavy tariffs on foreign goods including cars, there has been widespread surprise—indeed shock—that he has gone ahead and done exactly that.
From now, foreign cars sold in the US are subject to a 25% tariff. From May 3rd, foreign parts—mostly used in American car factories to make American cars—will also be hit to the same extent.
The President promises things will later get better for ordinary Americans. But the immediate impact of the tariffs will be that most cars will get more expensive in America. A tariff is simply a sales tax on imported goods.
Some 45% of the cars and light trucks sold in the US are imported, and many of the rest use significant numbers of imported parts or even whole powertrains. That’s not just the foreign-branded names: Around 45% of GM’s vehicles are foreign, mostly coming from Canada, Mexico, and South Korea.
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In 2024, just over one million Canadian-made and 2.5 million Mexican-made vehicles were sold in the US, compared with 2.7 million Japanese and Korean, and 0.9 million European, according to S&P.
During Donald Trump’s previous presidency, an agreement was signed covering trade across the North America region: the US-Mexico-Canada Agreement, which came into effect in the early months of the Biden term. It allowed for free trade between the countries, but with quotas for vehicle production, designed to protect US assembly-line jobs.
So at that point, President Trump seemed satisfied, and the manufacturers could continue building cars with Canadian and Mexican parts in their US plants, and cars with US components in their plants in Canada and Mexico. Now, he has effectively torn up his own agreement.
It’s not just that many cars will get more expensive. Many more will simply become unavailable if their makers can’t figure out a way of making money on them in this complex and reconfigured landscape. For sure, it will take manufacturers months or years to realign supply chains to increase US content.
This handy US Government publication lists the origin by percentage of parts in all cars sold in the US, and almost none of them have 100% local content. Indeed, some of the highest local content figures are for models made by the Japanese and Korean brands in their US plants. BMW and Mercedes make huge numbers of SUVs in America, but these are fitted with European powertrains.
The rules say the tariff is determined once the car is finished, rather than seeing tariffs applied each time components cross and re-cross a border on the way to being bolted into a finished car. So a car that’s built abroad but with 20% US content will have the tariff on 80% of its price.
NOTE: This article first appeared on TopGear.com. Minor edits have been made.
