Washington. President Donald Trump announced Wednesday that his administration will impose a 25 percent tariff on imported automobiles, a measure the White House claims will boost domestic manufacturing but could also raise costs for automakers reliant on global supply chains.

“This will continue to spur growth,” Trump told reporters. “We’ll effectively be charging a 25 percent tariff.”

The White House expects the tariffs to generate $100 billion in annual revenue. However, US automakers also rely on foreign-sourced components, making the policy potentially costly. The tariff, set to take effect in April, could increase production expenses and decrease sales. Trump insists the measure will lead to new factories opening in the US while reducing what he calls a “ridiculous” supply chain spread across the United States, Canada, and Mexico.

“This is permanent,” Trump said, underscoring the directive’s long-term intent.

Following the announcement, General Motors’ shares fell about 3 percent, Stellantis dropped 3.6 percent, while Ford saw a slight increase.

Potential Economic Impact

Trump has long touted tariffs as a cornerstone of his economic strategy, arguing they will encourage companies to relocate production to the US and help narrow the budget deficit. However, auto manufacturers operate global production networks to maintain competitive pricing, and shifting operations to the US could take years.

“We’re looking at much higher vehicle prices,” said Mary Lovely, senior fellow at the Peterson Institute for International Economics. “We’ll see reduced choice, and these kinds of taxes fall more heavily on the middle and working class.”

With new car prices averaging about $49,000, many households may be priced out of the market and forced to keep older vehicles longer. If the tariffs are fully passed on to consumers, the price of an imported vehicle could rise by an estimated $12,500, potentially fueling inflation—an issue Trump pledged to address when reelected.

International Backlash

Foreign leaders swiftly condemned the tariffs, signaling the possibility of a broader trade conflict.

“This is a very direct attack,” said Canadian Prime Minister Mark Carney. “We will defend our workers, our companies, and our country.”

European Commission President Ursula von der Leyen also expressed disappointment, stating that the European Union would take action to protect its consumers and businesses. “Tariffs are taxes—bad for businesses and worse for consumers, both in the US and the EU,” she said.

Additional Tariffs and Tax Breaks

Alongside the auto tariff, Trump proposed a new tax incentive allowing consumers to deduct auto loan interest from their federal income taxes, provided the vehicle is manufactured in the US. While this could offset some costs for buyers, it would also reduce expected tariff revenues.

The 25 percent tariff will apply to both finished automobiles and parts, according to a White House official. For vehicles covered under the USMCA trade pact, the tariff will only be imposed on non-US content.

A Broader Trade Shift

The auto tariffs are part of Trump’s broader push for “reciprocal” taxes, set to take effect on April 2, which aim to match tariffs and sales taxes imposed by other nations. The administration has already imposed a 20 percent import tax on Chinese goods due to Beijing’s alleged role in fentanyl production. Additionally, Trump has placed 25 percent tariffs on Mexican and Canadian imports, with a temporary suspension on some auto-related taxes.

The president has also reinstated 25 percent tariffs on steel and aluminum imports and plans similar measures on computer chips, pharmaceutical drugs, lumber, and copper. Some analysts warn that these moves could escalate into a global trade war, driving up costs for businesses and consumers.

In response to the EU’s planned 50 percent tariff on US spirits, Trump threatened a 200 percent tax on European alcoholic beverages. He has also proposed a 25 percent tariff on countries importing oil from Venezuela, despite the US being a major buyer.

Impact on the Auto Industry

Trump’s aides argue that the tariffs will pressure US automakers to increase domestic production. The administration cites Hyundai’s recent announcement of a $5.8 billion steel plant in Louisiana as evidence that tariffs can drive job growth.

Currently, about 1 million Americans work in motor vehicle and parts manufacturing, down 320,000 since 2000, according to the Bureau of Labor Statistics. Another 2.1 million work in auto and parts dealerships.

Last year, the US imported nearly 8 million cars and light trucks worth $244 billion, with Mexico, Japan, and South Korea as the top suppliers. Auto parts imports totaled $197 billion, led by Mexico, Canada, and China, according to the Commerce Department.