People walk past Tesla electric vehicles (EV) at the carmaker's delivery centre in Beijing, China January 8, 2025. REUTERS/Florence Lo/File Photo / Reuters

U.S. automakers and their global rivals were rocked on Mar.26 by President Donald Trump's announcement that he would impose 25 percent tariffs on all vehicles and foreign-made auto parts imported into the United States.

The new levies, if kept for an extended period, could add thousands of dollars to the cost of an average U.S. vehicle purchase and impede car production across North America.

That will be because of the intertwined manufacturing operations developed by car makers across Canada, Mexico and the United States over the last three decades.

Nearly half of all cars sold in the U.S. last year were imported, research firm GlobalData says.

In response to the news, shares of General Motors slumped 8 percent in after-market trading. Shares in Ford and U.S.-traded shares of Chrysler-parent Stellantis fell about 4.5 percent each.

In Asia, shares in Toyota Motor, Honda Motor, and Hyundai Motor all fell between 3 percent and 4 percent.

Shares in Tesla, which makes all the cars sold in the United States locally but with some imported parts, were down 1.3 percent.

Trump said the duties announced on Mar.26 could be a net neutral or even good for Tesla, adding that its CEO, and his close ally, Elon Musk, did not advise him regarding auto tariffs.

In a post on X following the news, Musk said the tariffs would also affect Tesla.

"This will affect the price of parts in Tesla cars that come from other countries," he wrote in another post on X. "The cost impact is not trivial."

The companies did not immediately return emails seeking comment.

Trump's tariffs and threats to impose them have sown uncertainty in businesses and roiled global markets since he returned to the White House in January.

On Mar.26, Trump reiterated that he expected the auto tariffs to prompt automakers to boost investment in the United States, instead of Canada or Mexico.

Autos Drive America, a group representing major foreign automakers such as Honda, Hyundai, Toyota and Volkswagen, said the "tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers, and fewer manufacturing jobs in the U.S."

Automakers in North America have largely enjoyed free trade status since 1994. Trump's 2020 U.S.-Mexico-Canada Agreement (USMCA) imposed new rules designed to spur regional content production.

After clamping tariffs of 25 percent on Mexico and Canada in early March, Trump allowed a one-month reprieve for vehicles produced in compliance with the terms of his USMCA, which benefited American companies.

The new rules do not extend that reprieve. 

"Companies that have invested hundreds of millions and billions of dollars in plants in Canada and Mexico will likely see their profits cut dramatically over the next few quarters, if not into a couple years," said Sam Fiorani, analyst at AutoForecast Solutions.

"We're going to look at adjusting our sales and production forecasts because this will throw everything into chaos."

The White House said that 25 percent tariffs on automotive parts imported to the U.S. would take effect no later than May 3, taxing key items such as engines, transmissions, powertrain parts, and electrical components.

Importers of automobiles under the USMCA will get the chance to certify their U.S. content so that only non-U.S. content is taxed, the White House said.

Before the unveiling of the new tariffs, Cox Automotive, an automotive services provider, predicted they would add $3,000 to the cost of a U.S.-made vehicle and $6,000 to vehicles made in Canada or Mexico, without exemptions.

If tariffs go through, by mid-April, Cox expects disruption to "virtually all" North American vehicle output, leading to 20,000 fewer vehicles a day, or a hit of about 30 percent to production.

The United Auto Workers union, which represents factory workers at Big Three Detroit automakers, praised Trump's action.

"With these tariffs, thousands of good-paying blue-collar auto jobs could be brought back to working-class communities across the United States within a matter of months, simply by adding additional shifts or lines in a number of underutilized auto plants," UAW President Shawn Fain said in a statement.