The “Stacking” Effect of the Trump Administration’s Auto Tariffs

Introduction

On Wednesday, March 26, the Trump administration announced another tariff hike in the name of countering trade practices that impair U.S. national security. The White House announced a 25 percent tariff on imports of automobiles and certain automobile parts.

President Trump signed a proclamation invoking Section 232 of the Trade Expansion Act of 1962, which allows the president to impose restrictions based on an investigation and affirmative determination by the Department of Commerce. The administration is relying on findings from a 2019 investigation to avoid a lengthy probe process. The CSIS Economics Program breaks down the announcement and why the tariffs’ cumulative nature may cause profound effects to U.S. automotive supply chains.

Covered Products

Portrayed as a means to protect the U.S. automotive industry, labeled as critical to national security, the 25 percent tariff rate will be applied to the following imported automotive products.

The White House has also indicated that it would develop processes to expand tariffs on additional automotive parts if necessary. Parts duties may start up to a month later, with a date to be set in a forthcoming Federal Register notice, but not later than May 3.

Tariff Stacking

The Trump administration’s various tariff rate proposals have the potential to be cumulative. There are three “tariff stacking” effects relevant to the White House automobile announcements, which are related to other tariff proposals, the variety of auto parts covered, and the automobile parts’ multiple border crossings.

Rates Accumulation

The auto tariffs are scheduled to be applied starting April 3—a day after “Liberation Day”—which President Trump has designated as the date he will announce reciprocal tariff rates following studies by the Department of Commerce and the Department of the Treasury on the policy’s implementation.

There have been different accounts from the administration on how reciprocity is going to be calculated. The initial idea was outlined in the February 13, 2025, presidential memorandum directing the Office of the U.S. Trade Representative and the Department of Commerce to investigate “harmful” nonreciprocal trade practices by foreign partners and prepare a report with proposed solutions.

The primary goal outlined in the memorandum is to “restore fairness” in these trade relations through tariff equalization—meaning the United States would impose reciprocal tariffs on imports from countries with higher rates than those in the United States. Additionally, the memorandum addresses other nonreciprocal practices, including “unfair, discriminatory, or extraterritorial taxes” like value-added taxes; nontariff barriers, subsidies, and “onerous regulatory requirements on U.S. businesses abroad”; currency devaluation, wage suppression, and other “mercantilist policies” that disadvantage U.S. companies; and “any other practice that . . . imposes unfair restrictions on market access or creates structural obstacles to fair competition with” the United States—providing the administration much leeway in assessing what constitutes unfair trade practices.

This method would be difficult to implement, with over two and a half million new tariff lines as well as complicated investigations into every U.S. trading partner’s practices. Consequently, the White House has also considered more feasible blanket rates. For instance, the United States may adopt a “country-by-country” basis in which imports from a given nation would face the same tariff hike as that country’s average tariff rate, or an even simpler approach of implementing one blanket rate increase for all trading partners.

Regardless of the White House’s method on “Liberation Day,” the administration’s rates could be cumulative. In this scenario, automotive imports would not “simply” face 25 percent rates. Instead, they would likely face the accumulation of the (1) existing most favored nation (MFN) rates, (2) reciprocal tariff rates, (3) the 25 percent automotive rate, and (4) whatever additional barrier the Trump administration may decide to implement in the future.

The hypothetical case below presents conservative estimates in which the White House only applies reciprocal rates equivalent to the country’s tariff on automobile imports (the product-by-product approach), without considering any other nontariff barriers.

These rates only present one potential “tariff stacking” scenario. Potential variations come from uncertainty around the administration’s approach to reciprocal tariffs. For example, the South Korea total may be overly optimistic. While KORUS has eliminated most tariff rates on Korean auto imports from the United States, the United States’ trade deficit with South Korea (ROK) has grown significantly in the past five years, and the United States has raised issues with the ROK’s digital competition policies; the administration may deem additional tariffs necessary to rectify perceptions of imbalance. Likewise, the final German rate may be too low in this example, as Europe may face an initial 20 percent rate.

Auto Parts Accumulation

As stated above, the Trump administration has named four main automobile parts to be subjected to U.S. tariffs: engines, transmissions, powertrain parts, and electrical components. Tariffs on these products would have major impacts on vehicle prices, as they make up the large majority of a finished automobile’s value. More problematically, as shown here—the percentages below can add up to over 100 percent—these parts are not mutually exclusive. For instance, engines and transmissions are crucial powertrain parts, and electrical components are present in virtually every other listed automobile feature.

Rates on engines, transmissions, and electrical components will render powertrains more expensive, even if they undergo assembly in the United States. When this effect interacts with the “border-crossings” tariff accumulation effect, it can multiply the costs of automobile tariffs.

Border-Crossings Accumulation

Automobiles and their parts rarely cross the U.S. border once. Parts like engines, transmissions, or other automotive components potentially crossing the U.S.-Canada and U.S.-Mexico borders up to seven or eight times before being assembled into a finished vehicle. It is unclear whether the proposed 25 percent tariffs by Trump would apply to each component every time it crosses the U.S. border or only once. If the former scenario is true, then the tariff’s accumulation would exacerbate burdens on consumers and businesses alike.

The five largest vehicle manufacturers in North America—General Motors (GM), Ford, Stellantis, Toyota, and Volkswagen—are especially vulnerable to trade disruptions. GM manufactures over 700,000 vehicles each year in Mexico, with more than 80 percent of them exported to the U.S. Ford produces models like the Mustang Mach-E in Mexico, with nearly 90 percent of its output destined for the U.S. Stellantis’ Jeep and RAM brands also depend significantly on Mexican production for U.S. sales.

Imports from Mexico and Canada are set to experience a reprieve. According to the White House, automobile importers will have the opportunity to certify their U.S. content, with systems in place to ensure that the 25 percent tariff is only applied to the value of non-U.S. content. For a United States–Mexico–Canada Agreement (USMCA) qualifying imported car, such as a Chevrolet assembled in Mexico, the importer can pay the 25 percent tariff based on the car’s value minus the U.S. content. For example, if the car’s import value is $60,000 and the U.S. content is 25 percent, the tariff would apply to $45,000. Under the USMCA agreement—negotiated by President Trump and signed in 2020—a compliant vehicle must meet the following criteria: 75 percent of core parts must originate from within the region, other parts must contain 65–70 percent regional content, at least 70 percent of the steel and aluminum must be sourced from North America, and 40–45 percent of the vehicle’s content must be manufactured by workers earning a minimum of $16 per hour.

In contrast, a non-USMCA-qualifying car built in Canada or Mexico would be subject to the full 25 percent tariff on its entire value, regardless of the U.S. content. Current calculations as required by the American Automobile Labeling Act (AALA) and the USMCA show what percentage of a vehicle’s components are from the United States and Canada (AALA) or the United States, Canada, and Mexico (USMCA), respectively. Calculating solely U.S. content will likely add some administrative burden for companies. For now, automobile parts that comply with the USMCA will remain tariff-free until the Department of Commerce, in coordination with U.S. Customs and Border Protection, implements a process to apply tariffs to their non-U.S. content. This functionality is expected by no later than June 24, 2025.

In any case, the Trump administration may be undermining its own goals of reshoring auto manufacturing, given the back-and-forth nature of U.S. automobile supply chains. Companies may well prefer to diversify their supply chains away from the United States altogether and “only” face the cost of a tariff for the fully assembled automobile, rather than face multiple tariffs for multiple parts coming into the United States.

Conclusion

The Trump administration’s automobile tariffs are sure to rock the sector’s supply chains while raising costs for consumers. Critically, they could undermine the White House’s reshoring goals by rendering final assembly manufacturing in the U.S. prohibitively expensive. Perhaps the most damaging long-term feature of the tariffs, however, is their indiscriminate nature. Much like the steel and aluminum tariffs, trade agreement and non-trade agreement partners alike will end up facing U.S. barriers on cars and their parts. The White House’s tariff policy may rapidly diminish the worth of a trading partnership with the United States.

Thibault Denamiel is a fellow with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.