The global auto industry was thrown into turmoil on Wednesday (March 26) as US President Donald Trump announced sweeping 25 percent tariffs on imported vehicles and auto parts.
The tariffs, set to take effect in early April, mark a significant escalation in Trump’s ongoing trade war and are expected to raise car prices, disrupt supply chains and provoke retaliatory measures from key US allies.
The White House is framing the measure as a strategy to boost domestic manufacturing and address what Trump has called an unfair reliance on foreign production. However, the tariffs apply not only to foreign automakers, but also to American brands, which rely heavily on imported parts and assemble many of their vehicles outside the US.
Carmakers take share price hits
The announcement sent shockwaves through global stock markets, particularly in the automotive sector.
Shares of major automakers in Japan, South Korea and Europe plummeted, with Toyota Motor (NYSE:TM,TSE:7203) and Mazda Motor (TSE:7261) leading declines in Tokyo. South Korean carmakers Hyundai Motor (KRX:005380) and Kia (KRX:000270) also took heavy losses, while auto parts suppliers in India and Germany saw sharp drops.
US automakers were not spared — shares of General Motors (NYSE:GM) tumbled nearly 7 percent, while Ford Motor (NYSE:F) and Stellantis (NYSE:STLA) each fell more than 4 percent in after-hours trading on Wednesday.
Tesla’s (NASDAQ:TSLA) share price, however, saw a slight increase, despite a warning from CEO Elon Musk that the tariffs will still have a ‘significant’ impact on his company.
Beyond the stock market reaction, industry analysts predict the tariffs could add thousands of dollars to the cost of vehicles, further straining American consumers already facing high inflation. The tariffs are expected to increase vehicle prices, with estimates suggesting an average rise of US$4,400 per new car.
The Center for Automotive Research previously projected that such tariffs could lead to a reduction of approximately 2 million in US new vehicle sales and result in the loss of nearly 714,700 jobs.
‘The tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers, and fewer manufacturing jobs in the US,’ said Jennifer Safavian, president and CEO of Autos Drive America, in a recent statement.
International backlash and retaliation threats
Key US allies, including Canada, Japan, South Korea and the European Union, swiftly condemned the move from the Trump administration and signaled potential retaliatory actions.
European Commission President Ursula von der Leyen described the tariffs as ‘bad for businesses, worse for consumers,’ while Canadian Prime Minister Mark Carney called them a ‘direct attack’ on Canadian workers.
‘We will defend our workers, we will defend our companies, we will defend our country and we will defend it together,’ Carney stated. He has also said Canada’s old relationship with the US is ‘over.’
Japanese Prime Minister Shigeru Ishiba said Tokyo is considering ‘all options’ in response to the new tariffs, and South Korea announced plans to implement an emergency response for its auto industry by early April.
Brazilian President Luiz Inácio Lula da Silva also criticized the move, warning that it could lead to inflation in the US and damage global economic stability. ‘Protectionism doesn’t help any country in the world,’ Lula said at a press conference in Tokyo, vowing to file a complaint with the World Trade Organization.
Trump, however, has remained defiant.
In an Oval Office statement, he defended the tariffs as a necessary step to curb what he described as foreign nations ‘taking our jobs, taking our wealth, taking a lot of the things that they’ve been taking over the years.’
He warned that if Canada and the EU retaliate, the US will respond with even ‘larger-scale tariffs.’
In a post on Truth Social, Trump stated, ‘If the European Union works with Canada in order to do economic harm to the USA, large-scale tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had.’
Auto industry divided on tariffs
While many automakers and trade groups have voiced opposition to the new tariffs, the United Auto Workers (UAW) union, an American union with over 400,000 active members, has applauded the move.
‘These tariffs are a major step in the right direction for autoworkers and blue-collar communities across the country, and it is now on the automakers, from the Big Three to Volkswagen and beyond, to bring back good union jobs to the U.S.,’ UAW President Shawn Fain said in a statement released on Wednesday.
Some foreign automakers have already announced plans to expand their US operations in an attempt to mitigate the impact of the tariffs. For example, Hyundai recently pledged to invest US$21 billion in the US over the next four years, including a new steel production facility in Louisiana.
Mercedes-Benz Group (OTC Pink:MBGAF,ETR:MBG) has indicated it will expand operations in Alabama, though it remains unclear how significantly these moves will offset the broader economic impact.
What comes next?
Trump’s auto tariff decision is the latest in a string of aggressive trade measures since his return to office.
Earlier this year, he announced tariffs on Canada and Mexico over their alleged roles in allowing fentanyl into the US; in addition to that, Trump has imposed new duties on Chinese imports, and has hinted at an upcoming reciprocal tariff policy that would match the import taxes of other countries.
Trade officials around the world are preparing potential countermeasures. The European Union is reportedly considering tariffs on US agricultural exports, while Canada is exploring retaliatory duties on American goods.
The move also raises questions about Trump’s long-term economic strategy.
While his administration argues that tariffs will encourage companies to bring production back to the US, many economists believe the costs will ultimately be passed on to American consumers and businesses.
For now, the global auto industry is bracing for uncertainty, with markets watching closely for further retaliatory measures and potential negotiations to mitigate the immediate impact of the tariffs.
Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
