President Trump announced late on Wednesday that he will impose a universal 25 per cent tariff on all car imports into the US, just hours after the Office for Budget Responsibility warned that fresh tariffs would erase Reeves’ newfound fiscal headroom.
These new levies are part of a package of anti-trade measures from 2 April, which Trump has dubbed ‘Liberation Day’.
In a rejection of the global supply chains which are increasingly crucial to the automotive industry, Trump told reporters: “For the most part, I think it’s going to lead cars to be made in one location.”
Pressed on whether this measure could be reversed in future, Trump replied: “This is permanent.”
The US imported more than 8m cars in 2024 – representing around £186bn in trade.
While the UK economy is not quite as vulnerable as Germany, Japan and South Korea to the threat of auto tariffs, the US is currently the top export destination for British car manufacturers.
In 2023, 18.4 per cent of UK automotive exports went to the US, accounting for £6.4bn.
Following the announcement, shares in General Motors dropped three per cent.
Meanwhile, shares in the top Japanese automakers – Toyota, Honda and Nissan – all dipped as Tokyo markets opened on Thursday.
Ursula von der Leyen, the European Commission President, has suggested that Brussels could strike back with retaliatory tariffs on American cars.
Mark Carney, the new Canadian Prime Minister, slammed the tariffs as a “direct attack” on Canadian industry – but that its economy would “emerge stronger” from the trade war.
He spoke of the “tight ties between our two countries, ties of kinship, ties of commerce, ties that are in the process of being broken.”
This latest move from the Trump Administration puts pressure on Starmer to carve out exemptions for the UK, with Rachel Reeves considering ditching the digital services tax as a bargaining chip.
These fresh levies arrive at an uneasy time for the UK automotive industry.
In February, the new car market stalled amid shaky UK consumer confidence.