Factory Focus Weekly Insights for Manufacturing in Mexico
It's the blog for manufacturing executives operating in Mexico. Designed as a concise, high-value fact sheet, it delivers critical weekly updates on legislative and regulatory changes that could impact your business.
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New Tariffs on Imported Cars
President Trump officially announced today a 25 percent tariff on all imported cars, including American brands assembled overseas, effective April 2. The measure, signed via Executive Order, aims to bring car manufacturing back to the U.S. but is expected to raise vehicle prices significantly and disrupt supply chains. Tariffs will also apply to imported auto parts, increasing the financial burden on manufacturers and consumers alike. Peter Navarro, the senior counselor to the president on trade and manufacturing, estimated to reporters that “less than 25 percent of the cars sold in America contain U.S. content.”
Trump has long advocated for using tariffs to boost U.S. industry and reduce trade deficits, reviving the Section 232 national security argument from his first term to justify the move. The U.S. imports nearly half of all cars sold domestically, and its auto industry is deeply integrated with Canada, Mexico, Japan, South Korea, and the EU. The announcement comes amid broader plans for “reciprocal” tariffs and adds to an already volatile trade environment.
In his proclamation, President Trump cited ongoing threats to U.S. national security stemming from excessive automobile imports and the fragility of global supply chains. He noted that previous trade negotiations and agreements like the USMCA and the U.S.-Korea Free Trade Agreement have not eliminated the risks to America’s industrial base.
What is included in the tariffs?
- A 25% tariff applies to imported passenger vehicles, including: Sedans, SUVs, Crossovers, Minivans, Cargo vans and Light trucks.
- The tariff also applies to key automobile parts, such as: Engines, Transmissions, Powertrain parts, Electrical components
- Tariffs will only apply to the value of non-U.S. content in vehicles imported under the United States-Mexico-Canada Agreement (USMCA):
- Importers can certify their U.S. content.
- USMCA-compliant automobile parts will remain tariff-free until the U.S. Commerce Department and U.S. Customs and Border Protection (CBP) establish a process to apply tariffs on non-U.S. content.
- If importers overstate U.S. content, the full vehicle value will be subject to the 25% tariff, applied retroactively and prospectively.
- The proclamation allows for possible future expansion of tariffs to additional parts if necessary.
- The measure was enacted under Section 232 of the Trade Expansion Act of 1962, which authorizes action on imports that threaten U.S. national security.
Response to the Tariffs
- Affected countries are expected to respond, with Canada and the EU already preparing retaliatory tariffs. Moreover, Japan has expressed concern over the economic impact.
- Some foreign automakers, like Hyundai and Mercedes-Benz, are pledging new U.S. investments to mitigate exposure.
- Domestic automakers are lobbying for relief, especially for vehicles imported from North American partners.
Possible Implications
- Car prices in the U.S. could rise by thousands of dollars, with estimates from Cox Automotive suggesting $6,000 increases for some models.
- Including auto parts in the tariffs will be a huge shock to the auto industry, causing chaos in supply chains and quickly leading to production cutbacks and layoffs. Auto production is expected to drop by 30%, threatening over a million manufacturing jobs and 2 million dealership jobs.
- Foreign retaliation may escalate trade tensions, especially with Europe and Canada.
- Stock markets reacted negatively, with major automakers', such GM, ford and Stellantis, shares falling. Tesla, which manufactures domestically, is less affected.
- Critics argue the move could undermine North America’s integrated auto industry and worsen inflation, especially for working families.
- Analysts at Bernstein said the tariffs would add as much as $75 billion per year to automaker costs, which they would have to pass on to car buyers.
- Other analysts cited in the White House fact sheet suggest that tariffs can have a positive impact in the US economy by reducing harmful imports, encouraging domestic production, and having minimal impact on inflation. The fact sheet mentions a 2024 analysis which projects that a global 10% tariff could generate $728 billion in economic growth, 2.8 million jobs, and a 5.7% rise in household income.
Next Steps
The 25% tariffs on imported automobiles will take effect on April 2, 2025, with revenue collection beginning April 3. For auto parts, tariffs will be implemented no later than May 3, with the exact date to be published in the Federal Register.
- Monitoring and Adjustments: The Secretary of Commerce will monitor import trends to assess threats to national security and recommend adjustments, including potential expansion of tariffs to additional auto parts based on input from domestic producers or new risk assessments.
- USMCA Certification Process: A certification process will be established for importers to document U.S. content under the United States-Mexico-Canada
- -U.S. portion of qualifying imports.
- Tariff Expansion Mechanism: Within 90 days, a formal mechanism will be launched to evaluate and potentially include additional parts in the tariff list, based on petitions from the industry or agency findings.
- Enforcement: U.S. Customs and Border Protection (CBP) will enforce compliance, including penalties for misreporting U.S. content.
Supersession and Future Actions
- Supersession Clause: Any conflicting proclamations or executive orders are superseded by this action.
The administration has signaled that additional reciprocal tariffs on other sectors, including pharmaceuticals and lumber, are expected soon, as part of a broader effort to counter foreign trade barriers and strengthen domestic industries.
Sources
The White House. (2025, March). Fact sheet: President Donald J. Trump adjusts imports of automobiles and automobile parts into the United States. https://www.whitehouse.gov/fact-sheets/2025/03/fact-sheet-president-donald-j-trump-adjusts-imports-of-automobiles-and-automobile-parts-into-the-united-states/
Swanson, A., & Ewing, J. (2025, March 26). Live updates: Trump announces 25 percent tariffs on imported cars. The New York Times. https://www.nytimes.com/live/2025/03/26/business/trump-tariffs-auto-cars
The White House. (2025, March). Adjusting imports of automobiles and automobile parts into the United States [Presidential proclamation]. https://www.whitehouse.gov/presidential-actions/2025/03/adjusting-imports-of-automobiles-and-autombile-parts-into-the-united-states/