Trump Turns Up Trade Pressure with Auto Tariffs, Markets Brace for More
Trump intensifies trade pressure with 25% auto tariffs, causing market uncertainty despite promises of "lenient" reciprocal measures.

Zeynep Kucukkirali
3 Min Read
Mar 27, 2025
Trump Turns Up Trade Pressure with Auto Tariffs, Markets Brace for More
As all eyes remain on April 2, U.S. President Donald Trump sent mixed messages---on one hand declaring he would be lenient with all countries, while on the other signing a proclamation to impose tariffs on auto imports, effectively expanding his trade pressures.
Since the beginning of the week, growing signals that the reciprocal tariffs would be more targeted---country-based rather than sector-based---had offered markets some relief from fears of an escalating trade war. However, Trump sowed confusion by stating on Monday that many countries could be exempted, only to say the following day that he didn't want too many exemptions.
Speaking to reporters in the Oval Office on Wednesday, Trump said he still planned to impose reciprocal tariffs on every country, but that the rates would be lower than expected. "We're going to be very lenient on the rates," he said, adding that they would be lower than what other countries have imposed on the U.S. for decades.
At the same time, President Trump signed a proclamation authorizing a 25% tariff on auto imports, effective April 2. The measure will cover all vehicles not manufactured in the U.S., as well as essential auto parts such as engines, transmissions, drivetrains, and electronic components.
The tariffs on vehicles are set to go into effect at 12:01 a.m. Washington time on April 3, while tariffs on auto parts are scheduled to take effect no later than May 3. The list of parts subject to tariffs may be expanded by then.
Trump claimed the tariffs would encourage growth in the domestic auto sector and push companies to relocate production back to the United States. He emphasized that, prior to his presidency, factories were being built in Mexico and Canada, but now that trend has stopped and companies are returning.

Major U.S. automakers like General Motors, Ford, and Stellantis currently produce a portion of their vehicles in Mexico and Canada. In fact, according to 2024 data, Mexico is the top source of U.S. auto imports, with Canada ranking fourth.
The auto import section of the USMCA trade deal-negotiated during Trump's first term-was one of its key components. The new auto tariffs were designed to remain within the bounds of this agreement and will only apply to the value of non-U.S. content.
On the other hand, countries like Japan, South Korea, and Germany, which account for a significant share of U.S. auto imports, are likely to be hit hardest by the new measures.
European Commission President Ursula von der Leyen called Trump's move "regrettable" and said the tariffs would be evaluated alongside other measures expected to be announced in the coming days. The European Union previously responded with retaliatory measures after Trump imposed tariffs on steel and aluminum, but it remains unclear how the bloc will react to the latest auto tariffs. Von der Leyen added that while the EU will protect its economic interests, it will continue to seek negotiated solutions.
Meanwhile, Canada's new Prime Minister, Mark Carney, labeled the tariffs a "direct attack." Ontario Premier Doug Ford also stated that Canada is very likely to retaliate. Canada has already imposed 25% retaliatory tariffs on C$60 billion worth of U.S. goods and has threatened to extend those duties to an additional C$95 billion if necessary.
Japanese Prime Minister Shigeru Ishiba also responded, stating that countermeasures would be considered. Autos and parts account for more than one-third of Japan's total exports to the United States, making the sector a critical component of its economy.
In short, while Trump has softened his stance on reciprocal tariffs, the implementation of a 25% tariff on the auto sector has kept tensions high with key trading partners.
Moreover, in a late-night social media post on Wednesday, Trump threatened to impose additional tariffs on the European Union and Canada if they were found to be cooperating to harm the United States. On the other hand, he suggested that tariff reductions could be possible for China-the primary target of his trade actions-if the Chinese-owned social media platform TikTok agrees to sell its U.S. operations to an American company.
When it comes to Trump, predicting his next moves remains difficult; his back-and-forth statements continue to leave markets in limbo. Still, his recent remarks suggest that while he may proceed less aggressively than expected on reciprocal tariffs for now, further measures could follow. Moreover, he appears intent on continuing to exert trade pressure through sector-specific tariffs.
Earlier this week, Trump said tariffs on pharmaceuticals could be announced "very soon." But when asked on Wednesday whether tariffs on pharmaceuticals or semiconductor chips would be unveiled on April 2, he replied, "Not then, but we will be putting a tariff on lumber." This indicates that Trump's tariff campaign may soon extend to other industries.
Analysts estimate that the new tariffs could add thousands of dollars to the price of a vehicle. As a result, the measures may further strain American consumers-already grappling with sticky inflation-and fuel concerns that higher costs could dampen spending and weaken economic growth.
When asked about potential price increases for consumers, Trump said he had submitted a request to the House of Representatives to include a tax deduction for auto loans in the upcoming tax relief package. If passed, the deduction would apply only to vehicles manufactured in the U.S. However, analysts note that even U.S.-made vehicles are likely to see price hikes due to the tariffs. This could mean mounting inflationary pressure in the U.S.-precisely what many had feared.
Last week, Federal Reserve Chair Jerome Powell argued that the inflationary impact of tariffs would likely be "temporary." However, other policymakers have begun voicing concern that the effects may be more lasting. St. Louis Fed President Alberto Musalem said that changes in tariff policy increased the risk of higher inflation, warning about second-round and indirect effects. He also noted that if inflation expectations become unanchored, the Fed may have to lean more heavily toward its price stability mandate.
As the Duhani Capital Research team, we see that given Trump's unpredictable approach to tariffs, uncertainty is likely to persist in the period ahead and will probably keep Fed officials on hold for longer. This suggests that event-driven market volatility may continue. In such an environment, lingering uncertainty is likely to keep investors positioned in safe-haven assets like gold.