The Trump administration is introducing a 25% tariff on cars and auto parts imported into the U.S. This means that vehicles and parts coming from other countries will cost more to bring into the U.S., which in turn could raise prices for consumers or push companies to make more cars in the U.S.

Trump has exempted auto part imports from the tariffs to soften the impact of the tariff on American automakers and consumers.

Let’s make this part super clear and simple:

The U.S. is putting a 25% tax on auto parts imported from other countries. To help car companies avoid this tax and encourage them to use more U.S.-made parts, the government is giving them a special break:

• Year 1 (starting April 3, 2025): If a car’s sticker price is, say, $40,000, companies can import parts worth up to $1,500 (3.75% of $40,000) without paying the 25% tax. This saves them money on those parts.
• Year 2: The same $40,000 car now gets a smaller break—companies can import parts worth up to $1,000 (2.5% of $40,000) tax-free.
• Year 3: The break disappears. Companies must pay the full 25% tax on all imported parts, no exceptions.

This deal gives companies a couple of years to start using more parts made in the U.S. instead of importing them, so they can avoid the tax altogether in the future. It’s like a temporary discount to help them adjust.

• Exemption From Other Tariffs: The administration is also imposing other tariffs, like:
  • 25% tariffs on goods from Canada and Mexico.
  • 25% tariffs on steel and aluminum.
  • 10% tariffs on imports from most other countries.
  • However, cars and parts that are already subject to the 25% auto tariff won’t have to pay these additional tariffs. This prevents companies from being hit with multiple taxes on the same products, which could make costs spiral out of control.

President Donald Trump is set to ease the impact of his previously announced 25% auto tariffs by issuing an executive order that includes credits and relief measures aimed at appeasing domestic automakers.

Under the new rules, auto companies assembling vehicles in the U.S. can receive credits equal to up to 15% of their vehicle value, which can be used to offset the cost of imported parts. This benefit starts at 3.75% of the car’s sticker price in year one and drops to 2.5% in year two, phasing out entirely in year three to promote domestic supply chain relocation.

Additionally, affected vehicles and parts will be exempt from other Trump tariffs, such as those on goods from Canada, Mexico, and metals like steel and aluminum. North American parts that meet USMCA origin requirements will continue to qualify for duty-free status. However, Chinese parts remain excluded from these reliefs, still subject to heavy tariffs.

The move follows significant pushback from automakers including GM, Ford, and Stellantis, who warn that tariffs could raise consumer prices, reduce sales, and risk production disruptions.

Commerce Secretary Howard Lutnick emphasized that the relief is designed to encourage companies to reshore their parts supply chains back to the U.S., aligning with the administration’s broader strategy to boost domestic manufacturing and reduce reliance on foreign supply chains.

Despite these adjustments, the 25% tariffs imposed last month on the 8 million vehicles the United States imports annually remain in effect. The White House stated that the change offers the industry “a little relief” as companies invest in more U.S. production.

In the short term, car prices might go up slightly because of the tariffs on imported vehicles and parts. However, the credits and exemptions are designed to limit how much prices increase. Over time, if more cars are made in the U.S., prices could stabilize, but it depends on how quickly companies adjust.

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Lauren Fix, The Car Coach is a nationally recognized automotive expert, media guest, journalist, author, keynote speaker and television host. A trusted car expert, Lauren provides an insider’s perspective on a wide range of automotive topics and safety issues for both the auto industry and consumers. Her analysis is honest and straightforward.