25% tariffs on imported cars

On 26 March 2025, President Trump announced 25% tariffs on imported cars, in force from April, and on many parts from May. The car industry is one of the largest industrial sectors in the world and also one of the most international, so a measure of this kind has repercussions on factories, suppliers and dealerships on several continents.

For Europe, and for Spain in particular, the car sector carries special weight in employment and exports. A car is made up of thousands of parts manufactured in different places, and a brand’s competitiveness depends on very tight costs, timings and volumes. A 25% tariff can upset that balance quickly, and not only for the large brands. The effects depend on how much each manufacturer produces in the US market itself and on how many parts it imports, so the same measure can affect two competing brands very differently.

Cars and parts

The tariff was not limited to finished vehicles: from May it also reached many parts. That matters because a car is built with components that cross borders several times, so the levy affects the whole chain, not just the brand that sells it. The more spread out production is, the more points of contact with the tariff. That is why early estimates of the impact should be treated with caution: the chain is long and the effects become known as contracts are renegotiated.

When the levy applies to parts as well as to complete cars, manufacturers that produce inside the United States with imported components are affected too. The measure therefore not only makes the vehicle that arrives from abroad more expensive but complicates the costs of those who assemble it there. It is a reminder of how intertwined production chains are today.

A highly connected industry

Spain is one of Europe’s major car manufacturers and its suppliers export all over the world. Makers of components, tooling workshops and logistics firms depend on the orders of the plants, and a change in demand in one market is passed on to all of them quickly.

Many of those companies are small and medium-sized firms that work for a single customer or a few, and whose capacity to react is limited. A change in orders can affect the workforce, the investment calendar and financing, and it is wise for them to think it through in advance, instead of waiting for the effect to show up in the profit and loss account. An open conversation with the main customer about its plans usually provides more information than any external estimate.

Recalculating margins and routes

Companies in the sector had to recalculate margins and commercial routes. It is worth analysing what share of sales reaches, directly or indirectly, the US market, which contracts allow the tariff to be passed on and what alternatives exist in other destinations or in production closer to the customer.

That analysis should include customers’ customers: a company that does not export to the United States may depend on another that does. It is also wise to check the state of credit lines and payment terms, because a fall in orders hits cash flow first. An adviser can help to prepare scenarios and to talk to the banks before it becomes necessary. All this without losing sight of the fact that the measure could change, so plans should be flexible and reviewed fairly often.

In such a long chain, the tariff is felt even by those who never exported to the United States.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.