Trump targets German auto industry with new foreign vehicle tariffs

Wall Street slumped ahead of Trump's Wednesday afternoon announcement, while the world's top-selling automaker Toyota plunged more than three percent.

"What we're going to be doing is a 25 percent tariff on all cars that are not made in the United States," Trump said, as he signed the order in the Oval Office.

Responding with shock, Germany's auto industry warned that the steep tariffs on car imports and parts sent "a fatal signal for free trade".

The 25 percent levies on foreign cars "place a significant burden on businesses and global supply chains" in the auto industry, with "negative consequences, particularly for consumers, including in North America", the automakers federation said in a statement.

The duties take effect on April 3rd and impact foreign-made cars and light trucks. Key automobile parts will also be hit within the month.

Trump responded by threatening Canada and the European Union with "large scale tariffs, far larger than currently planned" if they work together to cause "economic harm" to the United States.

READ ALSO: What do Trump's steel and aluminium tariffs mean for Germany?

'Foreign cheaters'

Peter Navarro, Trump's senior counselor for trade and manufacturing, in a briefing after Trump's announcement blasted "foreign trade cheaters" who he said turned America's manufacturing sector into a "lower wage assembly operation for foreign parts."

He took aim at Germany and Japan for reserving the construction of higher-value parts to their countries.

But Washington's levies appeared to raise eyebrows close to home, including from Trump ally and Tesla boss Elon Musk, who said the cost impact on his firm's cars was "not trivial".

"To be clear, this will affect the price of parts in Tesla cars that come from other countries. The cost impact is not trivial," he posted on X.

The association of American Automakers said in a statement on Wednesday that Trump's tariffs must be implemented in a way that "avoids raising prices for consumers" and preserves the industry's competitiveness.

Since beginning his second term in January, Trump has imposed fresh tariffs on imports from major US trading partners Canada, Mexico and China -- alongside a 25 percent duty on steel and aluminum.

The latest levies will be in addition to those already in place for products.

'Devastating impact' 

Trump has defended the levies as a way to raise government revenue and revitalise American industry.

But targeting imported cars could strain ties with close partners such as Germany, Japan, South Korea, Canada and Mexico.

"Imposing 25 percent tariffs on imported cars will have a devastating impact on many of our close trading partners," said Wendy Cutler, vice president at the Asia Society Policy Institute and a former US trade negotiator.

She added that Washington has free-trade agreements with some affected parties, "calling into question the value of US commitments" under a trade deal.

The Center for Automotive Research has previously estimated that US tariffs –- including those on metals and imported autos –- could increase the price of a car by thousands of dollars and weigh on the jobs market.

READ ALSO: 'Erratic' US policies likely to hit German growth

Denouncing the new tariffs on Thursday, German Economics Minister said the EU must "respond firmly" to the move.

"It must be clear that we will not give in to the US," Habeck said. "We need to show strength and self-confidence."

'Liberation Day'

Besides the automobile industry, Trump is also eyeing sector-specific tariffs, such as on pharmaceuticals, semiconductors and lumber.

Wednesday's announcement comes ahead of Trump's so-called "Liberation Day" for the world's biggest economy on April 2nd.

He has promised reciprocal levies, tailored to different trading partners to remedy practices Washington deemed unfair. On Wednesday he said these duties will impact all countries.

While Trump has invoked emergency economic powers for some recent tariffs, his auto levies build on a government investigation completed in 2019.

The probe found that excessive imports were weakening the internal economy and might impair national security.

By Danny Kemp and Beiyi Seow