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Trump drives trade war fears as auto tariffs pound allies
Long-promised duties on autos seen driving up prices, slowing production
- PUBLISHED: Thu 27 Mar 2025, 6:32 PM
Governments from Ottawa to Paris threatened retaliation on Thursday after US President Donald Trump unveiled a 25% tariff on imported vehicles, expanding a global trade war, hammering stocks and testing already strained ties with allies.
The new levies on cars and light trucks will take effect on April 3, the day after Trump plans to announce reciprocal tariffs aimed at the countries he blames for the bulk of the US trade deficit. The US imported $474 billion worth of automotive products in 2024, including passenger cars worth $220 billion.
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Mexico, Japan, South Korea, Canada and Germany, all close US allies, were the biggest suppliers. The tariffs are a sucker punch for Europe at a time when relations with Washington have plummeted over issues such as the war in Ukraine and the upending of a decades-old transatlantic alliance, with the US as the ultimate guarantor of European security.
European Commission President Ursula von der Leyen described the move as "bad for businesses, worse for consumers". Canada Prime Minister Mark Carney called a cabinet meeting to weigh a response, with retaliatory countermeasures a possibility.
"We will get through this crisis — and we will build a stronger, more resilient economy," he said on social media. With billions of euros wiped from German auto shares on Thursday, German Economy Minister Robert Habeck called for a tough stance. "It needs to be clear that we will not take this lying down," he said.
Underscoring the jitters in Europe's biggest economy, where carmakers are buckling under high costs and tough foreign competition, the head of Germany's car industry association said the tariffs are a "fatal signal" for global trade.
In neighbouring France, which is hosting a Ukraine summit without the US on Thursday, Finance Minister Eric Lombard called Trump's plan "very bad news" and said the only solution was for the EU to raise its own tariffs. Britain, which has struggled to grow its economy, was scrambling to secure an exemption but also threatened to review subsidies given to Tesla, which is headed by top Trump adviser Elon Musk. Canada froze rebate payments for the electric car maker on Tuesday.
The company, which faces declining sales, increased competition, and a political backlash, is less exposed to Trump's tariffs than its rivals, but Musk said on X that the impact is "still significant."
Automakers warned of immediate price hikes and dealers raised fears of job losses. The new levies could add thousands of dollars to the cost of an average vehicle in the United States, contradicting Trump's campaign promise to lower consumer prices.
"None of this leads to more jobs or better wages. It leads to sluggish sales, costlier credit, and potential layoffs — exactly what a fragile economy doesn't need," said Nigel Green, CEO of global financial advisory deVere Group.
Wall Street's main indexes opened lower on Thursday as Trump's tariff gambit sent auto stocks into a tailspin.
Trump threatens further escalation
Even as politicians threatened retaliation, Europe's auto industry called for a transatlantic deal to avert a tariff spiral that could hammer an industry that accounts for six per cent of the region's employment.
"There will an obvious blowback on a sector that has already faced considerable headwinds from a painful transition to EVs alongside tighter regulations, in addition to slower replacement cycles from drivers and higher energy costs," said Lindsay James, an investment strategist at Quilter.
China's foreign ministry said the US approach violates World Trade Organization rules, undermines the multilateral trade system and was "not conducive to solving its own problems." With shares falling, Japanese Prime Minister Shigeru Ishiba said Tokyo will put "all options on the table" and South Korea said it would put in place an emergency response by April.
Trump sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining US industrial base. Many trade experts, however, expect prices to initially rise and demand to fall, hurting a global auto industry that is already reeling from uncertainty caused by Trump's rapid-fire tariff threats and occasional reversals.
Trump said he might hit the EU and Canada with larger tariffs if they teamed up to retaliate.
"If the European Union works with Canada in order to do economic harm to the USA, large scale Tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had," he said in a post on Truth Social.