U.S. imposes 25% section 232 tariffs on imported vehicles and parts, citing national security concerns

The Trump administration has ignited a new transatlantic trade confrontation by imposing tariffs on imported automobiles. Beginning April 3, 2025, foreign passenger cars and light trucks entering the U.S. will be subject to a 25 percent tariff, with a similar levy on auto parts set to take effect May 3. The announcement, justified on national security grounds under Section 232 of U.S. trade law, provoked immediate outrage from European officials and industry leaders. European Commission President Ursula von der Leyen denounced the move as “bad for business, worse for consumers,” and Germany’s economy minister called for a “firm response” from the EU. Auto industry groups on both sides of the Atlantic warned of serious economic repercussions, with the European Automobile Manufacturers Association (ACEA) calling the tariffs a “deeply worrying blow at a crucial moment for the global transformation of the sector”. In the days that followed, Brussels prepared retaliatory measures, and the United States escalated further by imposing a 20% tariff on all EU imports from April 9, 2025. This article analyzes the political rationale behind the tariffs, their projected economic impact, the industrial and geopolitical ramifications, and what this standoff means for the future of trade relations between the EU and the US and the future of the automotive sector on both sides of the Atlantic.

Policy overview: section 232 and national security rationale

Underpinning Washington’s move is Section 232 of the Trade Expansion Act of 1962, a law that empowers the U.S. president to adjust imports (including through tariffs) if an investigation finds that they threaten national security. Historically, it has been used sparingly, but the law has been used extensively as part of the Trump administration’s trade strategy. During his first term, Trump invoked Section 232 to impose steel and aluminum tariffs back in 2018. Now, in 2025, the administration has revived that authority to justify sweeping automotive tariffs, arguing that America’s domestic auto industry and supply chain have been undermined by “excessive imports,” posing a risk to the country’s economic security. Officials point out that in 2024, Americans purchased ~16 million cars and light trucks, about half of which were imported; even among the ~8 million vehicles assembled in the US, only about 50% of the components were made in the US. By this estimate, only 25% of the content of cars sold in America was truly “made in the USA.” Other concerns highlighted by the Commerce Department study include a $93.5 billion U.S. trade deficit in auto parts in 2024, a one-third decline in U.S. auto parts manufacturing jobs since 2000, and U.S. automakers lagging in R&D spending (U.S. companies accounted for only 16% of global auto R&D in 2023, compared to 53% for EU companies). The supply disruptions caused by the COVID-19 pandemic were also cited as evidence that overreliance on foreign parts is a strategic vulnerability.

In invoking Section 232, the administration argued that years of trade agreements and negotiations had failed to address these imbalances. Indeed, the March 26 proclamation declared that decisive action was needed to rebuild a “strong domestic industrial base” for automobiles and ensure that the US could meet its automotive needs from its own production. This is one of the broadest uses of Section 232 to date and has been met with skepticism by free trade advocates who see national security as a pretext for protectionism. Still, the policy is now in effect, and it’s important to understand its far-reaching economic implications.

Economic impact of US tariffs on EU car exports

Impact on the EU automotive sector

Europe’s car industry faces a significant hit from the U.S. tariffs. The United States is the largest export market for EU automakers, accounting for about €56 billion in European automotive exports in 2023​, as highlighted in an Oxford Economics report on European automotive exports. That sum —comprising both vehicles and parts— represents roughly 20% of Europe’s auto industry output​. A 25% tariff will make those vehicles far more expensive in the U.S. market, likely undercutting demand and market share for European brands. Oxford Economics estimates that EU automotive exports to the U.S. would plunge, with German and Italian carmakers —who rely the most on the U.S. market— seeing export volumes drop ~7%​. Such a contraction would deliver a “substantial blow” to a pillar industry that supports 13.8 million European jobs across manufacturing and supply chains​.

While some EU manufacturers might attempt to redirect cars originally bound for the U.S. to other regions, analysts caution that lost American sales cannot be easily offset due to differing consumer preferences and limited alternative markets​. In short, the tariff threatens to dent Europe’s auto production, employment, and GDP, particularly in export-dependent auto hubs like Germany.

Impact on U.S. consumers and U.S. auto industry

American car buyers are poised to feel the sting of these tariffs in their wallets. Automotive research groups forecast steep price increases on many vehicles sold in the U.S. as importers pass on the 25% tax. On average, industry observers predict new car prices could jump by several thousand dollars per unit, an inflationary surge that may price out some consumers and dampen auto sales. S&P Global Mobility, for example, projects that U.S. light vehicle sales could fall from about 16 million to 14.5–15 million units annually if the tariffs remain in place​.

Notably, the pain won’t be limited to luxury European imports; global supply chains ensure even U.S. built cars will cost more, since many American-assembled models rely on foreign parts now subject to the tariff​. Auto parts like engines, transmissions, and electronics imported from Europe (and other regions) are hit with the same 25% duty​, raising costs for U.S. factories. While U.S. automakers might enjoy a price advantage over foreign rivals in the American market, higher parts costs and retaliatory losses abroad may offset any competitive benefit. Indeed, Oxford Economics notes that “one might think U.S. manufacturers would come out winners,” but because supply chains are global, input costs will rise, and other countries’ counter-tariffs could erode those gains​.

The net economic effect could be negative for many stakeholders: European producers lose U.S. sales, some U.S. companies lose export markets, and U.S. consumers pay higher prices for fewer choices.

Strategic and supply chain implications

Tariff shockwaves are forcing automakers to reconfigure supply lines. Global production may shift as companies weigh moving more manufacturing to the U.S. to bypass import duties.

Beyond the immediate price and output effects, the tariffs are catalyzing strategic shifts in automotive supply chains. Facing a permanent 25% barrier, European (and Asian) automakers will be pressured to localize car production in the U.S. to maintain access to the market. Automakers like BMW, Volkswagen, and Mercedes-Benz —which already operate sizable U.S. assembly plants—stand to mitigate the tariff’s impact by building more models stateside​. In fact, those firms’ U.S. factories could “benefit under such a tariff policy” in relative terms​, potentially expanding as production of import-dependent models is relocated. However, shifting production geographically is neither cheap nor immediate. Building new plants or retooling supply networks takes years, and in the interim, many companies are resorting to stopgap measures: rushing shipments of vehicles and components before duties hit, scouring for alternate suppliers, and re-evaluating model line-ups for the U.S. market.

Global supply chains built on just-in-time delivery are now strained. Industry experts say the tariffs are effectively a “reset of the automotive value chain”, pushing manufacturers toward more regionalized, self-contained supply loops​. In practice, this could mean North American parts suppliers seeing a surge in demand as OEMs try to replace imported components —a long-term goal of the policy. But in the short term, realigning supply chains is painful: manufacturers may endure parts shortages or have to absorb tariff costs, leading to production slowdowns. The ability to maintain Automotive Sector Excellence amid these disruptions will depend on how effectively companies adapt to regionalized sourcing and evolving trade landscapes.

The ripple effects extend globally. Trump’s trade policy has thus set off a chain reaction of protectionist measures, threatening to fragment the world auto trade into regional blocs. “The US’s planned tariffs and retaliatory tariffs will upend the highly optimized and globalized automotive supply chain and result in very few winners,” warns Daniel Harrison, an auto analyst​. He predicts “major plant shutdowns or relocations, significantly higher vehicle prices (rising by $4,000–$12,000), and as a result, a sharp decline in both sales and production—resembling a Covid-style industry shock” if the situation endures​. In essence, the industry faces a profound strategic dilemma: absorbing the tariffs and suffering lower margins and volumes or restructuring decades-old production footprints to conform to a new era of trade barriers.

EU response and countermeasures

Brussels has reacted with a mix of condemnation and preparation for retaliation. Von der Leyen emphasized that Europe didn’t seek this conflict but is ready with a “strong plan to retaliate” if necessary​. According to The Guardian, these measures include reintroducing tariffs on $4.5 billion worth of U.S. goods—such as jeans and Harley-Davidson motorcycles—that had been suspended during Joe Biden’s presidency. The implementation is now scheduled for mid-April after the European Commission decided to delay the original April 1st date to better align the measures with other actions and to fine-tune the EU’s position among the 27 member states. EU leaders are also finalizing a second wave of measures covering roughly €18 billion in U.S. goods​.

Notably, European officials have yet to publicly announce tit-for-tat tariffs on American cars. The EU’s standard tariff on imported cars is already 10%, and any additional hike could hurt European consumers. Instead, Brussels is focusing on other leverage points— including the possibility of curbing U.S. access to services or procurement and pursuing legal action. The EU has filed disputes at the WTO over the U.S. Section 232 measures, though the WTO’s dispute process is slow, and the U.S. insists national security matters aren’t subject to review. European trade officials are also exploring more unconventional counters​. But these ideas remain theoretical for now, as the preferred EU approach is still negotiation —Von der Leyen reiterated that the EU would rather return to the table than escalate​. Indeed, she and other European leaders have signaled openness to discussing a transatlantic trade accord that addresses industrial tariffs, subsidies, and standards if that could avert a full-blown trade war.

Broader trade and geopolitical context

The dispute over car tariffs comes at a tense moment in EU–U.S. relations. What began as trade tensions during Trump’s first term has now escalated sharply. European allies, once confident the U.S. would avoid targeting them, are facing new “reciprocal tariffs” across many sectors. For the EU, this includes a flat 20% tariff on all exports to the U.S. from April 9, widening the conflict beyond just the automotive industry.

The stakes are high: U.S.–EU trade in goods and services reached €1.6 trillion in 2023, and both economies are deeply intertwined. A full trade war could hurt growth, shake financial markets, and disrupt investment flows across the Atlantic.

This clash also risks derailing other trade negotiations between the U.S. and EU, from digital services taxes to steel and aluminum agreements. Globally, other nations are watching closely, as this dispute could redefine trade alliances. Whether this becomes a lasting rift or leads to renewed cooperation depends on the choices made in the coming months.

Conclusion: The effects of transatlantic car tariffs

The imposition of U.S. auto tariffs and the ensuing transatlantic crossfire herald a potential inflection point for the global economy. In the near term, higher costs, disrupted supply chains, and retaliatory punches will likely dominate, with consumers and industries caught in the middle. The long-term consequences hinge on how leaders navigate the standoff from here. One possible path is a negotiated settlement—perhaps a new trade pact addressing auto tariffs and others—that could avert deeper damage. Indeed, both sides have incentives to find an off-ramp: the U.S. might seek concessions (like lower EU auto tariffs or quotas on exports) that allow Trump to declare victory and dial back the measures, while the EU would prefer a return to stable trade conditions to protect its economy. Another path, however, is a trade war that resets business as usual, forcing companies into costly adjustments. This worst-case scenario would see tariffs becoming a semi-permanent feature, effectively taxing transatlantic commerce until either a political change in Washington or a mutual economic imperative forces a rethink.

This upheaval compels automotive manufacturers to intensify their focus on operational excellence. Embracing Lean methodologies and prioritizing cost reduction in the automotive sector will be essential to offset rising costs, streamline processes, and maintain profitability amid shifting trade dynamics. Companies prioritizing waste reduction, supply chain agility, and continuous improvement — while advancing digital transformation in manufacturing — will be better positioned to navigate this turbulent environment and emerge more competitive.

The coming period will reveal whether this rupture is temporary brinkmanship or the dawn of a more fragmented global trading order. In either case, companies are bracing for a bumpy ride, and policymakers face high-pressure choices to steer this conflict toward a resolution that safeguards both economic and strategic interests on both sides of the Atlantic.