A 25% import tax on engines, transmissions and other key car components has officially taken effect in the United States, deepening uncertainty for an auto industry already grappling with shifting trade policies under President Donald Trump.
The tariff—part of a broader protectionist push by the Trump administration—comes weeks after the president slightly softened his stance in response to business backlash but fell short of scrapping the measure. It follows a similar 25% levy on imported cars introduced last month.
President Trump has defended the tariffs as a move to boost domestic manufacturing, saying they will incentivise carmakers to shift production to US soil. However, analysts and industry executives warn that the immediate effect will likely be higher production costs, reduced foreign output, and rising prices for American consumers.
General Motors (GM) and Ford have reported strong sales in April, driven by a rush to purchase vehicles ahead of anticipated price hikes. But GM warned the company could face up to $5bn (£3.7bn) in new expenses this year alone—$2bn of which stem from tariffs on vehicles made in South Korea and exported to the US. The firm has now adjusted its forecast, predicting a 1% rise in prices, instead of a decline.
The uncertainty has prompted carmakers such as Stellantis—producer of Jeep, Fiat and Chrysler—to withdraw their financial outlooks, citing the volatile nature of current trade conditions. “We remain subject to extreme uncertainties,” said Doug Ostermann, Stellantis’ Chief Financial Officer.
About half of all vehicles sold in the US last year were imported, a figure that underscores the industry’s reliance on global supply chains. When Trump first unveiled the tariff plans in March, the move sent shockwaves through the sector, sparking warnings of supply disruptions, higher consumer costs, and lower output.
Though Mexico and Canada—key players in the North American auto supply chain—have been granted exemptions under existing free trade agreements, questions remain about how long such relief will last. New customs guidance suggests these exemptions may now be more permanent, although the administration has yet to confirm this formally.
Trump has also signed measures to help carmakers avoid double tariffs on the same components and introduced a two-year system to ease the burden on parts imported from non-NAFTA countries but used in US-assembled vehicles.
Some firms have already taken steps to offset the added expenses. GM expanded truck production by 50,000 units at its Indiana facility and cut back operations in Canada. Mercedes said it could ramp up activity at its plant in Alabama.
But major investments remain on hold amid the policy instability. “If I’m going to make a multi-billion dollar decision… I wouldn’t do it in a market that is this unstable,” said Art Wheaton, Director of Labour Studies at Cornell University.
The administration is reportedly in talks with Japan and South Korea over potential trade deals that could shape future policy. Analysts suggest Trump may further tweak the measures if significant economic fallout becomes apparent.
“Everything is pretty good now,” Wheaton added. “I don’t think the full impact of those tariffs has hit yet.”
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