The US government’s introduction of increased tariffs—particularly on steel, aluminum, and certain vehicle parts and automobiles—is having a significant impact on the global automotive sector. The US' trade relations with China, Canada and Mexico are particularly affected.

A central component of President Trump's tariff policy is the promotion of domestic automotive production. The aim is to encourage car manufacturers to relocate their production to US soil, in order to attract production facilities and other industrial activities to the US.

As part of this policy, Trump has carried out threats and restricted free trade by increasing tariffs on imports from the United States' three most important trading partners. Imports from Canada and Mexico will be subject to tariffs of 25%, while existing tariffs on China have been doubled from 10% to 20%. The tariffs for Canada and Mexico are now subject to monthly negotiation, adding to the general uncertainty.

In the automotive industry, supply chains are often globally networked: vehicles are developed in one country, their components produced in other countries, and they are assembled in a third country. Tariff increases will have significant consequences for both manufacturers and existing supply chains. Car manufacturers that already produce in the US are dependent on suppliers from neighboring countries, such as Canada. These suppliers operate 156 production sites in 19 US states, with individual car parts crossing the border between the US and Canada up to eight times before final assembly. In addition, many car parts regularly cross the border between Canada, the US and Mexico.

Imposing customs duties of 25% will either mean that the production of car parts on both sides of the border will only be possible at a considerable loss, or more likely, that additional costs will be passed along to consumers, leading to an increase in the price of cars. Every time a component crosses the border before final assembly, it is subject to an additional customs duty, leading to a drastic increase in production costs.

Asian and European car manufacturers, which export to the US, are affected by the new tariffs. German car manufacturers, some of which produce vehicles for the American market in Mexico, are under considerable pressure. A relocation of production would probably cost jobs on both sides. The higher tariffs imposed by the US could also eliminate or diminish the advantage of low-wage production in Mexico.

Beyond the direct economic impact, these new tariffs also fuel uncertainty on the international markets. Car manufacturers and suppliers will likely become more cautious due to the unpredictable trade situation, leading them to factor new risks into their planning or even to defer investments altogether.

Manufacturers of electric vehicles are also particularly affected. They face potential supply chain disruptions, higher production costs, and limited market access. Given the rarity of certain required materials, electric vehicle manufacturers rely on global sourcing. The tariff increase could add thousands of dollars to production costs, which would require a major restructuring of the North American supply chain. These additional costs will also be passed on to the end consumer, which could lead to a decrease in demand.

Despite previous government incentives and falling battery costs, which have made electric vehicles more competitive compared to petrol and diesel-powered vehicles, there is a risk that the new tariffs will slow down this progress and the industry's momentum at a crucial time.