5 questions about Trump's auto tariffs

The Hill

27-03-2025

President Trump escalated his trade war with partners when he announced this week he would impose a 25-percent tariff on foreign vehicles and automobile parts.
The president argued that tariffs would encourage foreign car producers to move production into the United States and boost American jobs, but backlash from trading partners and a hit on U.S. economy loom as major risks.
Americans are bracing for higher prices of cars and consumer sentiment is sagging while allies like the European Union are weighing their response to the latest aggressive tariff.
Trump's new tariffs could even raise the costs of U.S.-made autos, given how many auto parts are sourced from across the world.
Here are five questions surrounding Trump's auto tariffs.
When do the tariffs take effect?
The tariffs for completed autos will go into effect on April 3, the White House said in a Wednesday statement. Individual auto parts have tariffs with different effective dates, but will be in force no later than May 3.
The 25-percent import tax will be in addition to existing import fees and charges that are already in place within the supply chains of the auto industry, which is integrated across different international borders.
The White House said the tariffs will remain in place 'unless such actions are expressly reduced, modified, or terminated.'
The Trump administration has canceled, walked back or delayed multiple tariff orders during the course of its trade war so far.
The president in February imposed a tariff on packages from China worth less than $800 before canceling the order amid a package pile up at U.S. ports of entry.
Trump also imposed 25-percent tariffs on goods from Canada and Mexico before exempting imports that were covered under the terms of a pre-existing trade deal.
Sales of imported new autos totaled $75 billion in the fourth quarter of 2024.
Auto parts that are compliant with current North American trading rules will not be taxed, the White House said Wednesday, until the Commerce Department, along with U.S. Customs, 'establishes a process to apply tariffs to their non-U.S. content.'
Auto parts that are deemed to be 'U.S. content' will also not be subject to the tariff, though they may cross international borders during the production process.
'U.S. content' is defined by the White House as 'parts wholly obtained, produced entirely, or substantially transformed in the United States.'
Tom Alongi, national manufacturing practice leader at accounting firm UHY noted in a commentary to The Hill the exemptions outlined by the Trump administration as well as the U.S. content designation, saying they could lead to confusion.
'The new tariffs create confusion and logistical nightmares for those not positioned to absorb additional cost or ramp up local production,' he said. 'Automakers and suppliers will have to be flexible and agile to meet changing requirements.'
Auto parts affected will eventually include engines, transmissions, powertrain components, and electrical components, the White House said.
The prospect of untangling U.S.-made parts from foreign-made parts for taxation purposes promises to be a cumbersome one for the auto industry and the government, which is undergoing wide-ranging cuts. Individual parts like a rear suspension assembly can contain goods made across North America.
It's not clear how long it will take for the relevant certification processes to be established and put into practice.
How are other countries responding?
Europeans swiftly criticized Trump's aggressive move, with European Union president Ursula von der Leyen vowing to negotiate a solution.
'I deeply regret the U.S. decision to impose tariffs on EU automotive exports. Tariffs are taxes – bad for businesses, worse for consumers, in the US and the EU. The EU will continue to seek negotiated solutions, while safeguarding its economic interests,' she said on X.
Trump early Thursday morning threatened to impose larger tariffs on the European Union and Canada if they team up against the U.S. to retaliate after he told reporters the day prior, 'we're the piggy bank that everybody steals from and they've been doing it for many years, for decades, and we're not going to let it happen.'
The European Automobile Manufacturers' association (ACEA) expressed their concern over the tariffs, arguing they 'will hurt global automakers and US manufacturing at the same time.' Countries like Germany, Japan and South Korea are major manufacturers of cars that are sent to the U.S. and the head of Germany's auto industry association warned of the consequences that both the U.S. and Europe can face.
The European auto industry relies on the U.S. for exports of European-made cars, like BMW, Volkswagen, Mercedes-Benz, Volvo, Stellantis, among others. European automakers export more than 6.3 million vehicles a year, over 24 percent of which go to North America, according to data from ACEA.
Japan has also expressed concerns over the tariff announcements. On Thursday, the Vice Minister for Foreign Affairs held a phone call with U.S. Deputy Secretary of State Christopher Landau in which he 'conveyed Japan's position regarding the tariff measures.'
Kyodo News reported that Japan asked the U.S. for an exemption, with a top government spokesperson calling the auto tariffs 'extremely regrettable.'
Will the tariffs impact Elon Musk's Tesla?
Tesla could be insulated from the tariffs, considering its factories in California and Texas make all the cars that Musk's company sells in the U.S.
Musk weighed in on Wednesday, arguing the Tesla will face a 'significant' impact from the tariffs, but did not explain why.
The president said Wednesday Musk did not weigh in on his auto tariffs considering 'he may have a conflict.' Trump has also insisted that he has never been asked for a favor in business by Musk.
The president said that the tariffs 'may' be good for Tesla.
'It could be a net neutral, or it may be good. He has a big plant in Texas, he has a big plant in California, and anybody that has plants in the United States, it's going to be good for,' the president said.
The White House has given Tesla unprecedented support, going to bat for the company while it suffers financial woes and has been the target of vandalization and other violent backlash since Musk's work with Trump. Trump offered a personal show of support for Musk earlier this month, promising to buy a Tesla while testing out a series of models parked outside the White House.
When asked about the reaction from other automakers, the president said it depends on how much they produce in the U.S.
'It depends on whether or not they have factories here. I can tell you, if they have factories here, they're thrilled. If you don't have factories here, they're going to have to get going and build them, because otherwise they have to pay taxes,' Trump said.
How will the tariffs hit the US economy?
Importers can respond to tariffs in various ways, including just eating the costs and reducing their profits, and there isn't a one-to-one relationship between wholesale-level import taxes and retail-level prices.
However, companies and trade groups have been describing the Trump tariffs as inflationary. Consumers are expecting higher prices over the next year, and Federal Reserve Chair Jerome Powell has said Trump's tariffs may delay progress on inflation.
'We know that tariffs are coming … all forecasters have tariff inflation affecting core [personal consumption expenditures] inflation, core [consumer price index] inflation this year, without exception,' Powell said earlier this month.
The latest benchmark consumer sentiment survey from the University of Michigan showed year-ahead inflation expectations rising to a 4.9-percent annual increase, the highest level since 2022. It also showed overall sentiment declining.
Meanwhile, the White House has argued the tariffs are a good thing for the U.S. economy and especially workers in the auto industry.
Autoworkers appear to agree.
'We applaud the Trump administration for stepping up to end the free trade disaster that has devastated working class communities for decades,' the United Autoworkers labor union said in a statement shared by the White House Wednesday. 'Ending the race to the bottom in the auto industry starts with fixing our broken trade deals, and the Trump administration has made history with today's actions.'