This evening, President Donald Trump signed a proclamation imposing a 25% tariff on foreign-made passenger vehicles, light trucks and automobile parts. While the proclamation currently identifies engines, transmissions, powertrain components and electrical parts as automobile parts subject to the tariff, it also includes a process to expand these tariffs, if needed. The tariff also applies to vehicles from American companies whose cars are assembled outside of the United States.
Importantly, importers under the United States-Mexico-Canada Agreement (USMCA) will have the opportunity to designate the U.S. content in their vehicles. Accordingly, systems will be implemented to ensure the tariff only applies to the value of the non-U.S. content. Until this system is established, USMCA-compliant automobile parts will remain tariff-free. The the secretary of commerce, in consultation with U.S. Customs and Border Patrol (CBP), has been tasked with developing this process.
The tariff is referred to as a “reshoring tariff,” with President Trump exercising his authority under Section 232 of the Trade Expansion Act of 1962. These “reshoring tariffs” are designed to encourage manufacturers to move production of targeted goods, such as automobiles, back to the United States.
President Trump announced the tariff will take effect on April 3—the day after “Liberation Day,” which marks the date for the administration’s “reciprocal tariffs.” This date will see the implementation of country-specific tariffs targeting nations with trade barriers that hinder U.S. market access abroad.
Brownstein’s Outlook
Currently, 50% of vehicles sold in the United States are imported, while nearly 60% of all vehicle parts used in domestic automobile assembly are sourced from abroad. Mexico, Japan, South Korea and Canada are anticipated to be the most impacted, with the International Trade Administration (ITA) reporting that Mexico accounted for $78.5 billion worth of auto imports for 2024. Japan comes in second with $39.7 billion, followed by South Korea with $36.6 billion and Canada with $31.2 billion. This reliance on imports has made the U.S. auto industry vulnerable to global supply chain disruptions. While newly imposed tariff may encourage more auto manufacturers to open factories and production facilities in the United States in the long term, the immediate impact could result in a disruption in the overall auto supply chain, uncertainty for auto manufacturers and a potential increase in prices for consumers.
