US President Trump appears to be following through on his threats to impose additional tariffs on all new vehicle imports to the US. The White House has unveiled plans for a 25% import tariff on all imported vehicles from 3 April, sparking renewed fears of an international trade war.
The new tariffs are on top of duties already introduced on steel and aluminium, and on goods from Mexico, Canada and China. A new round of reciprocal tariffs on other goods – targeted at countries/blocs seen as having big trade surpluses with the US – is also planned for imposition next week.
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Mexico, Japan, South Korea, Canada and Germany are the biggest suppliers of automotive products to the US.
New US trade tariffs in recent weeks have already triggered retaliatory action, with China imposing additional tariffs of up to 15% on a number of US agricultural products and commodities. Canada’s newly appointed Prime Minister, former Bank of England Governor Mark Carney, has vowed to take up the trade war with the US if elected following imminent federal elections.
For decades, the American automotive industry has benefited from the free trade agreement between the US, Canada, and Mexico.
Government data shows that Canada exported some US$28bn worth of vehicles in 2024, with more than 90% going to the US. Canada’s main vehicle producers include General Motors, Ford, Stellantis, Toyota and Honda. The US also exports significant volumes of vehicles in the other direction – worth an estimated US$23bn last year.
US automakers including General Motors, Ford and Stellantis accounted for a significant proportion of exports from Mexico to the US, while Europe’s Mercedes-Benz, BMW and Volkswagen Group; Japan’s Toyota, Honda, Nissan and Mazda; and South Korea’s Hyundai-Kia, also have significant manufacturing operations in the country targeting the US market.
Japan and South Korea also have substantial trade surpluses with the US, with automotive products – including vehicles and components – among the biggest culprits. Japan was the second-largest vehicle exporter to the US last year after Mexico, with almost 1.5 million units worth some US$41bn. South Korea’s shipments to the US last year were worth around US38bn, including 768,000 units by Hyundai Motor and 377,000 by Kia Corporation, while GM Korea also exported significant volumes. Germany was the fifth-largest vehicle exporter to the US, with shipments worth US$26bn, followed by the UK with almost US$10bn.
Supply chains threatened – but some signs of FDI pivots
US-based vehicle manufacturers also rely heavily on low-cost imported components, particularly from Mexico and Asia, to help them remain competitive. Hiking tariffs not only increases retail prices of imported vehicles, but also significantly increases the cost of vehicles produced locally. Ironically, the automaker that appears to be the least affected directly by rising US import tariffs is Tesla, owned by Donald Trump’s close friend Elon Musk.
The new US President’s abrupt and confrontational unilateral trade policies may well yield some significant results, including commitments by Asian and European vehicle and component producers to step up their investments in new manufacturing capacities in the US. But investment strategies and plans take time to implement and depend heavily on a stable and predictable government policy environment. New component supply chains and full-scale vehicle production operations cannot be built overnight and require significant capital.
At the end of last year Hyundai-Kia completed construction of a new US$5.4bn vehicle and battery manufacturing facility in the US state of Georgia, which was originally designated to produce next generation battery electric vehicles (BEVs).
Earlier this week, Hyundai Motor Group said it has committed to a $21bn investment in the US from 2025 to 2028, with an aim to expand its production capabilities, advance future technologies, and bolster energy infrastructure.
South Korea is also leading the way in investing in electric vehicle (EV) battery manufacturing capacity in the US, with construction of a dozen or so stand-alone and joint venture plants by LG Energy Solution, SK On and Samsung SDI, worth tens of billions of US dollars combined, launched in the last few years. These mostly involved partnerships with US-based manufacturers including Ford, General Motors and Stellantis. Some of these plans are now being reviewed, and some are likely delayed or scaled back, as BEV demand expectations in the US are revised down. However, major FDI plans have been put in place by foreign companies to serve US market needs.
The UK position
As the Trump administration squares up to the EU (with Germany’s huge trade surplus in automotive products a key flashpoint) on trade policy, the position of the UK is more complicated. The UK Government appears to be holding out for the prospect of a bilateral trade deal with the US, helped by an overall trading relationship that is more or less in balance. However, the latest White House tariffs announcement on autos impacts all vehicle imports, including those from the UK.
Ian Henry, analyst at AutoAnalysis, points out that the impact of a 25% tariff on UK-made cars/SUVs will be felt most at Jaguar Land Rover (JLR) and BMW-owned MINI, the highest volume exporters to the US.
“The scale of the impact will depend on a combination of a) how long they are in place for, ie a month, a year, for the length of the Trump presidency; b) how much of the tariff the VMs decide to pass on to consumers (all of it? some of it? none of it?); and c) how consumers react to this and how much this varies by brand,” he says.
“It’s likely that the ‘cheapest’ UK brand exported to the US, ie MINI, would have consumers who are – relatively – the most price-conscious,” he maintains.
“At the high-end of the market where profit margins on vehicles sold are naturally much higher (eg brands such as Rolls-Royce and Bentley), there may be more flexibility in terms of absorbing the tariff by cutting margins at dealers, or at the ex-factory gate price level which could reduce the landed cost in the US and therefore reduce the amount on which the tariff is levied.
“Also, JLR and Mini may be able to shift some production to the US through the use of CKD kits assembled locally,” Henry says. However, he also warns that this would not be quick. “Moreover, the US customs authorities may deem such kits to be UK sourced vehicles and could therefore still apply the tariff.”
Natural hedging for some European OEMs
European carmakers with plants in the US have more scope to raise sourcing in the US for ‘natural hedging’ and some – such as BMW – have been developing contingency strategies for this in recent months. “The US production facilities could, in theory, take on some production for the US from European factories,” notes Henry. “Although tariffs on imported components would need to be factored in.” However, he also warns that supply chains are difficult to reconfigure. “Switching vehicle assembly from one plant to another is one thing,” he says. “But duplicating supply chains in the US comes with its own considerable challenges and costs.”
Earlier this year, BMW CEO Oliver Zipse pointed out that BMW’s big US (Spartanburg, South Carolina) plant could provide natural cover in the event of new US import tariffs. Some two thirds of BMW’s US vehicle sales already come out of its US plant, which is a global production base for the company. Other OEMs will also be developing strategies to reduce their exposure to new trade tariffs, which have been heavily signposted by Donald Trump for months. The problem is how quickly they can react and the additional costs incurred by doing so. There’s also the question of how fixed any new trade measures really are. There have previously been rollbacks and exemptions made.
In the meantime, there are real fears that an escalating global trade war will disrupt global production and supply chains, leading to higher costs and prices while also reducing profitability more generally in the automotive industry. All this at a time when automotive companies are wrestling with the challenges – and higher investment costs – of the energy transition from fossil-fuels to electric vehicles.
There are also suggestions that rising consumer prices in the US, because of new tariffs on a wide range of goods, could lead to a slowdown in economic growth, in the US and globally.
