In Depth: U.S. Tariffs Rattle Global Auto Industry

At a campaign rally in Michigan in October, Donald Trump pledged to revitalize the state's auto industry, suggesting that by the end of his presidential term "the world will be talking about the Michigan miracle and the stunning rebirth of Detroit" [para. 1]. He repeated this promise during his January 20 inaugural address as the 47th U.S. president, affirming U.S. automakers would achieve unprecedented levels of domestic car production [para. 2].

To achieve these goals, Trump turned to tariffs, announcing on February 18 a threatened 25% tariff on auto imports and formalizing the policy on March 26. The tariff was set to take effect for passenger vehicles on April 3 and certain auto parts a month later, raising the existing base U.S. tariff rate from 2.5% [para. 3]. This move unsettled the auto industry, leading to cost-mitigation efforts and warnings of supply chain disruptions. Under industry pressure, Trump partially reversed course on April 29, introducing a tariff offset system for American-assembled vehicles [para. 4].

Global supply chain repercussions were immediate. Chinese auto parts suppliers, critical to carmakers like Tesla, faced turmoil due to restricted exports, especially for electric vehicle (EV) batteries [para. 5]. The European Union exported €38.5 billion ($43.8 billion) worth of vehicles to the U.S. in 2024—about 25% of its total auto exports—while Japan sent cars worth 6 trillion yen ($42 billion), about 28% of its total car exports [para. 7][para. 8]. Collectively, Mexico, the EU (plus the UK), and Japan supplied nearly 70% of U.S. passenger car and light truck imports by value in 2024 [para. 9]. Canada and Mexico also remained dominant auto parts suppliers to the U.S., sending 61.5% and 51.7% of their respective auto part exports northward [para. 10].

The industry responded with rare unity. On April 21, six major auto groups sent a joint letter to top Trump administration officials, warning that the 25% parts tariffs could destabilize supply chains, trigger production stoppages, layoffs, and even bankruptcies [para. 11][para. 12]. They emphasized that America's automotive sector supports 10 million jobs and contributes $1.2 trillion to the U.S. economy each year [para. 15].

China, integral to global auto supply chains, has been particularly affected by Trump's broader tariff strategy, with a cumulative 145% tariff on all Chinese goods [para. 16]. By February, China lost its lead as the largest supplier of lithium-ion batteries to U.S. automakers; battery imports from China fell by 14% from January to March [para. 17]. Tesla, for instance, suspended plans to ship components for its Cybercab and Semi trucks from China after the tariff hikes [para. 18]. Some firms responded by shifting orders to countries like Vietnam, taking advantage of temporary tariff exemptions [para. 20]. Others, such as Allegro Microsystems, which draws over 70% of its revenue from automakers, leveraged dual production lines in both China and the U.S. to adapt [para. 21].

Trump's March 26 proclamation also modified vehicle value assessments under the U.S.-Mexico-Canada Agreement, enabling importers to document "U.S. content" in vehicles and apply the 25% tariff only to the non-U.S. portion [para. 23]. In total, Americans purchased around 16 million vehicles in 2024, half of which were imports; domestic content in U.S.-assembled vehicles averaged only 40-50% [para. 24].

Automakers' responses included plans to increase U.S. production: Volkswagen considered U.S. manufacturing for new Audi models, BMW aimed to boost South Carolina output by up to 80,000 units, and Mercedes-Benz announced that 70% of its U.S. sales would come from U.S.-made vehicles by 2027 [para. 28][para. 29]. Japanese firms like Toyota and Honda also weighed shifting production to the U.S., though complete supply chain moves within two to three years seem unlikely before the next U.S. presidential transition in 2029 [para. 31][para. 32][para. 33].