Trump eases car tariffs burden as new trade measures loom

The decision helped calm some investor concerns over the administration’s unpredictable trade approach as the president visited Michigan, a key hub for car manufacturing, just days before a fresh set of 25% import taxes was set to kick in on automotive components. 

The move also coincided with the announcement of a new trade agreement with a foreign partner, which the administration promoted as a win for its trade agenda.

With public confidence in his economic policies waning, Trump offered the car industry a reprieve: carmakers will have two years to increase the share of the US-made components in vehicles built domestically.

Carmakers will be allowed to offset a portion of the tariffs — equivalent to 3.75% of a vehicle’s recommended retail price until April 2026, and 2.5% of overall domestic production until April 2027 — on imported components used in local manufacturing.

Industry leaders had heavily lobbied the administration, warning that the tariffs threatened the integrated North American car supply chain spanning the US, Canada, and Mexico. 

Modern car manufacturing relies on components that frequently cross borders multiple times before final assembly, with parts such as engines, electronics, and transmissions often produced in one country, refined or modified in another, and finally installed in a third. Disrupting this flow, they argued, would increase costs, cause delays, and undermine competitiveness. 

Trump acknowledged those concerns, saying: “We just wanted to help them… if they can’t get parts, we didn’t want to penalise them.”

The White House clarified that the policy does not roll back the 25% tariffs already imposed on the 8 million vehicles imported annually.

Autos Drive America, which represents major foreign carmakers including Toyota, Volkswagen, and Hyundai, welcomed the move but emphasised that further action is needed to boost US car production.

What are tariffs?

A tariff is a tax on imports imposed by the government and typically paid by the company importing the goods – in this context, cars. Tariffs are usually calculated as a percentage of the value of the imported goods. For example, a 25% tariff on a £20,000 imported car would add £5,000 to its cost.

While tariffs are meant to protect domestic businesses, consumers may end up paying more for cars if importers pass on the higher costs instead of absorbing them or reducing imports.

US carmakers – including General Motors and Ford – have previously urged the president to exempt imported cars and vehicle parts from tariffs.

What’s the UK’s response?

Chancellor Rachel Reeves has said the government is open to lowering tariffs on US car imports to broker a trade deal with the Trump administration.

A document circulating among US business groups and unions is seeking views on a potential deal with the UK. This deal is focused on lowering UK tariffs on US cars to 2.5% from their current 10%.

If the UK cuts the US car tariffs, Britain would expect to see Trump cut his already imposed 25% tariff on UK car imports to America.

Philipp Sayler von Amende, Chief Commercial Officer at Carwow, said: “President Trump’s plan to scale back tariffs on foreign-made parts — just days before the 25% rate was due to kick in — is a welcome, last-minute reprieve for car manufacturers in the US. But it’s far from a full reset.

“The bigger issue remains: a 25% tariff still applies to cars built overseas, which continues to create pressure for UK manufacturers trying to keep British-built vehicles price-competitive for US consumers.

“The White House has framed this move as a reward for brands investing in US manufacturing — a message likely to resonate with European firms such as Volvo, Audi, Mercedes-Benz and Hyundai, many of whom had already started shifting production to America to get ahead of the tariffs.

“Whether the UK secures a separate deal for a lower car tariff remains to be seen. At the same time, Washington is seeking lower tariffs on US-built vehicles coming to the UK — suggesting there’s still a lot to play for in the ongoing negotiations.”

What does tariffs mean for UK drivers?

If the 25% tariffs on imported cars are paused or lifted, it could lead to a reduction in the overall price of foreign-made cars, particularly those from countries like Japan, Germany, and South Korea. These countries are renowned for producing reliable, high-quality vehicles with unique specifications and models.

With fewer tariffs, carmakers may also be willing to import a wider range of cars, increasing availability and variety of cars in the market. This could help if you’re looking for a specific model that was previously made more expensive due to the tariff.

While lifting these tariffs may benefit consumers, it also introduces uncertainty about the long-term impact, especially given that Trump’s previous tariff revisions have already caused global market instability. This could make both carmakers and consumers hesitant, as they remain unsure whether the tariffs will be reinstated after the pause.

There’s also a case of demand and interest for American-built cars even if the UK didn’t have tariffs on US car imports. Phil McNamara, Editor-at-large at Auto Express, says that there’s not much appetite for US cars in the UK.

He said: “A Ford topped the new-car sales charts in both the UK and the US. But not the same Ford: we flocked to the Puma, a tiddly crossover dwarfed by America’s top-selling F-150.

“That’s one reason why President Donald Trump’s plaintive cry for Europeans to buy more American vehicles or face tariffs is hollow and self-serving. So many American vehicles don’t fit our tastes or use cases.”

Meanwhile, von Amende added: “For UK dealers and buyers, the knock-on effects aren’t yet fully clear. But the last three weeks have highlighted just how globally interconnected the car industry is, and when financial market realities bite and intense supply chain pressure and fierce corporate lobbying converge, they can outweigh the headlines of political theatre.

“Of course, this also shows that Trump has a track record of changing course, so there’s every chance we’ll see further adjustments. A rollback to around 5% across the board would still allow the administration to claim a win — doubling the original 2.5% tariff — while allowing foreign-built cars to start flowing back into the US market by the end of May.”

What if Trump permanently goes ahead with the tariffs?

With tariffs in effect, you could face price hikes on popular models from German brands such as BMW, Audi, and Mercedes, which rely heavily on sales in the US market.

According to Mike Thompson, COO at Leasing Options, these manufacturers may increase UK prices to offset losses from US tariffs as a result. This could make premium vehicles less affordable for British car buyers.

Reshuffling global supply chains in response to tariffs may also affect availability. Manufacturers might prioritise markets with fewer trade barriers, meaning you could face shortages of certain models. For example, EVs such as BMW’s i4 and iX could be redirected to regions with stronger demand or lower tariff concerns.

This poses a challenge for UK drivers, especially with the 2035 zero-emissions target and the upcoming ban on new petrol and diesel cars. Trump’s tariffs could also disrupt global production and supply chains, potentially making it harder for the UK to secure the electric cars needed to meet its Zero Emission Vehicle (ZEV) mandate and transition goals.

Tariffs could also lead to shifts in buying behaviour, with an ‘economic wobble’ caused by global trade tensions potentially putting pressure on household finances. When that happens, people typically tighten their belts, which could drive used car prices lower as demand softens.

The industry has its say

Economists have raised red flags about Trump’s approach, warning that tariffs could drive up prices across the US. A study by automotive consultancy Anderson Economic Group recently found that blanket tariffs on Canada and Mexico could increase car prices by up to $12,000.

With major car exporters – including Mexico, Japan, South Korea, Canada, and Germany – potentially affected, the economic consequences could be far-reaching. However, White House official Will Scharf has argued that the tariffs could generate over $100bn in annual revenue for the US.

“Constant shifts in direction come at a cost, creating uncertainty for businesses up and down the car manufacturing supply chain,” said von Amende. “Policymakers around the world must recognise how critical long-term stability is to the automotive sector. From investment decisions to stock availability and consumer confidence, this is a global industry that needs clarity — not surprises — to thrive.”

Meanwhile, INEOS Automotive argued that the EU has neglected the tariff situation with the US, despite Trump’s clear intentions to implement tariffs, and that European leaders have failed to come to the table to negotiate a better solution.

“This is what happens when politicians sit on their hands,” said Lynn Calder, CEO of INEOS Automotive. “As a growing EU-based automobile brand, we are vulnerable to tariffs, and we need our politicians to support our business, our jobs and our economies. We need urgent and direct political intervention on tariffs.”

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), expressed disappointment over the tariffs. He warned that additional tariffs on UK-made cars could harm the long-standing UK-US trade relationship, as US consumers enjoy British-built vehicles and UK drivers buy American-made cars.

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