President Donald Trump has announced new import taxes of 25% on cars and car parts coming into the US.
Trump said the latest tariffs would come into effect on 2 April, with charges on businesses importing vehicles starting the next day. Taxes on parts are set to start in May or later.
The president said the measure would lead to “tremendous growth” for the industry, promising it would spur jobs and investment in the US.
But analysts have said the move is likely to lead to the temporary shutdown of significant car production in the US, increase prices, and strain relations with allies.
Trump’s latest move threatens to upend global car trade and supply chains.
The US imported about eight million cars last year – accounting for about $240bn (£186bn) in trade and roughly half of overall sales.
Mexico is the top supplier of cars to the US, followed by South Korea, Japan, Canada and Germany.
Many US car companies have operations in Mexico and Canada as well, set up under the terms of the longstanding free trade agreement between them.
The new tariffs on car parts from Canada and Mexico are exempt while US customs and border patrol set up a system to assess the duties, the White House said. The neighbouring countries see goods worth billions cross borders each day.
On Wednesday, shares in General Motors slid roughly 3%, while Stellantis – the owner of Jeep and Chrysler – fell 3.6%.
In a post on X, Elon Musk said Tesla would be affected by the measures. “The tariff impact on Tesla is still significant,” he said.
Trump’s plan for car tariffs is his latest in his wider drive to protect American businesses and boost manufacturing within the US.
But while the measures can protect domestic businesses, they also raise costs for businesses reliant on parts from abroad.
Analysts have estimated that the cost of a car made using parts from Mexico and Canada alone could add $4,000-$10,000 to its cost depending on the vehicle, according to the Anderson Economic Group.
Trump told reporters the tariffs would be “permanent” and reiterated his reasoning that: “If you build your car in the United States there is no tariff.”
The prime minister of Japan, the world’s second largest exporter of cars, said it would put “all options on the table” in response to the tariffs.
Shares in Japanese carmakers – including Toyota, Nissan, Honda – all fell on Thursday.
‘Direct attack’
These new tariffs are expected to come in on the same day as other countries are set to impose penalties on the US in retaliation against previously announced taxes.
It is not clear how the car tariffs might affect those plans.
The US was the top sales market for British-based Jaguar Land Rover last year, exceeding sales in the UK and China.
UK Chancellor Rachel Reeves told the BBC the new tariffs would be “bad for the UK, and bad for the US as well”, adding the UK was involved in “extensive” talks to avoid them being imposed in Britain.
For the UK, the US is the second largest car export market after the EU, according to the Society of Motor Manufacturers and Traders (SMMT).
Its chief executive Mike Hawes urged the UK and US governments to “come together immediately and strike a deal that works for all”.
European Commission president Ursula von der Leyen said the bloc would consider the measures before any potential response.
Early on Thursday, Trump threatened “far larger” tariffs if the European Union and Canada worked together to do what he described as “economic harm” to the US.