President Donald Trump announced March 26 a sweeping 25% tariff on all cars imported into the U.S., a move expected to significantly raise vehicle prices and challenge the integrated North American auto industry.
“We start off with a 2.5% base, which is what we were at, and we go to 25%,” Trump told reporters before signing an executive order in the Oval Office. The tariff is set to take effect April 2.
While the administration did not confirm whether the new tariff includes foreign-made auto parts, the potential for such inclusion has sparked concern across the automotive sector. According to a study by the Anderson Economic Group, the cost of producing vehicles in U.S. plants could rise by $3,500 to $12,000 per unit if parts are also subject to the tariff.
There is no such thing as a fully American-made car, with vehicles assembled in the U.S. often relying heavily on parts from Canada and Mexico. Under existing trade law, those parts have been counted as domestic content due to the United States-Mexico-Canada Agreement (USMCA), which temporarily shielded automakers from previous tariff efforts.
The USMCA-based exemption is set to expire April 2, the same day the new tariffs take effect -- coinciding with what Trump has dubbed “Liberation Day,” a broader tariff rollout targeting goods from multiple countries.
“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,” Trump said, referencing conversations with leaders of the Big Three automakers -- Ford, General Motors and Stellantis.
Although automakers had been bracing for potential tariffs, the announcement still raised uncertainty. “We were all kind of expecting April 2 to be our day,” one auto executive told CNN. “But if the Trump administration has shown us anything, I mean, things are unexpected.”
Even if the tariffs apply solely to assembled vehicles, the price impact could be immediate. Lower-cost models such as the Chevrolet Blazer and Honda HR-V -- produced in Mexico -- may become unprofitable or disappear from U.S. markets entirely.
“One of the losses from tariffs tends to be a loss of product variety,” another industry executive told CNN.
Heavier and more profitable models could also be affected. The heavy-duty Ram trucks, built in Mexico, and certain versions of the Chevrolet Silverado, may face price hikes or long-term production shifts. Relocating manufacturing back to the U.S., however, could take years and significant investment.
In 2024, Mexico produced 4 million vehicles, 2.5 million of which were exported to the U.S., according to S&P Global Mobility. Canadian plants produced 1.3 million vehicles, sending 1.1 million to American dealerships. Automakers from across the globe -- including Toyota, Honda, Nissan, Hyundai, Volkswagen and Mercedes-Benz -- operate plants in both countries.
The effects may cascade throughout the supply chain. The U.S. exported $35.8 billion in auto parts to Mexico and $28.4 billion to Canada last year. If demand drops or production halts, the 550,000 U.S. workers employed in the parts sector could face cutbacks.
Retaliatory tariffs from Canada and Mexico could further strain U.S. exports, which totaled $14.9 billion to Canada and $4.6 billion to Mexico in 2024.
According to Cox Automotive, about 30% of North American vehicle production -- or approximately 20,000 vehicles per day -- could be disrupted under a full-scale tariff regime.
The administration has yet to release full details of the policy, leaving automakers, suppliers and consumers awaiting further clarification ahead of the April 2 deadline.
