Timeline:
March 26: President Trump issued a proclamation, “Adjusting Imports of Automobiles and Automobile Parts into the United States,” declaring a national emergency under Section 232 of the Trade Act of 1962 and levying a 25% tariff on all foreign autos and auto parts and on the non-U.S. content in autos and parts made in Canada and Mexico.
Between April 3rd, 2025, 12:01am and May 3rd, 2025: 25% auto and auto parts tariffs would go into effect, in addition to other pre-existing tariffs.
Within 90 days of the proclamation: The Secretary of Commerce and Customs and Border Control will establish a process to identify U.S. and non-U.S. content in auto parts; tariffs on parts will not be levied until this process is in place.
On March 26, 2025, President Trump issued a proclamation, “Adjusting Imports of Automobiles and Automobile Parts into the United States,” declaring a national emergency under Section 232 of the Trade Act of 1962 and levying a 25% tariff on all foreign autos and auto parts and on the non-U.S. content in autos and parts made in Canada and Mexico. These tariffs will be levied on top of existing auto tariffs, such as the 100% tariff on Chinese electric vehicles imposed by President Biden in 2024. The proclamation acknowledges that the first Trump administration failed to negotiate any trade deals that addressed problems of trade competitiveness in the auto industry or yielded positive outcomes (Paragraphs 3 and 6).
In 2024, U.S. International Trade Commission data show the United States imported more than 4.1 million cars and pick-up trucks from Canada and Mexico, worth $118 billion, and more than $100 billion in auto parts. Though the U.S. content of Canadian and Mexican imports would be excluded from these tariffs, the move promises significant disruptions to the U.S. motor vehicle industry. But the proclamation makes no mention of this and offers no provisions to protect U.S. workers in the supply chain who may face furloughs and layoffs as a result. Further, if Mexico and Canada retaliate reciprocally, it will put $32 billion in U.S. vehicle exports and $68 billion in parts exports in jeopardy.
The tariffs will cover all foreign-made passenger vehicles and light-duty pick-up trucks, engines and engine parts, transmissions and powertrain parts, and electrical components. A list of covered parts is to be published in the Federal Register; auto and auto parts producers and industry associations may petition the Commerce Secretary to include additional parts on the list subject to this 25% tariff.
Vehicles and parts produced in accordance with “rules of origin” specified by the U.S.-Mexico-Canada Agreement (USMCA) will only be subject to tariffs on the value of non-U.S. content. USMCA rules—negotiated by President Trump and signed in 2020—specify that a conforming vehicle must include 75% regional value content in core parts, 65-70% regional content in other parts, 70% of the steel and aluminum content must be North American in origin, and 40-45% of the content must be produced by workers earning at least $16 an hour. The president’s proclamation, in effect, blows-up these rules and the supply chains built around them. However, rules for calculating non-USMCA content, the so-called “rolling-up” methodology, leaves a gaping backdoor for foreign content to penetrate North American supply-chains and qualify for duty-free access to the U.S. market, even where it is illegally subsidized, without offering the same market access to U.S. content in foreign markets.
Under the USMCA, companies essentially self-certified their compliance with rules of origin, but the president’s proclamation will require companies to apply proactively for ex ante certification of compliance by the Secretary of Commerce to receive exclusions from the tariffs on U.S. content and establishes penalties for companies found fudging their calculations of domestic and foreign content.
The proclamation finds that the COVID-19 pandemic revealed critical chokepoints in the automotive supply chain, leading to production disruptions and higher retail prices for vehicles. The primary supply-chain disruption came from limited access to semiconductors (aka “chips”), which comprise roughly 40% of the cost of a new vehicle. However, the president has called existing policies to address chip shortages—the bipartisan CHIPS and Science Act—“horrible” and vowed to reverse that legislation.
Impact:
25% tariffs on non-U.S. automobiles and automobile parts promise severe disruption to the nearly 5 million vehicles and $320 billion of trade in North American motor vehicle production chains, with no provisions for the workers likely to face dislocation or the consumers likely to face higher prices who will bear the costs of transition.