U.S. President Donald Trump has announced new trade taxes of 25% on cars being imported to the U.S., set to come into effect April 2, reports BBC News.

Trump claimed in an announcement late in the afternoon of March 26 that the measure would lead to "tremendous growth" for the car industry, promising it would create jobs and increase investment in the U.S. But industry executives and trade experts argue the tariffs are likely to cause major disruption in car production, increase prices, and strain relations with allies.

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Mexico is the top foreign supplier of cars to the U.S., followed by South Korea, Japan, Canada and Germany.

Car manufacturing and distribution has been integrated between the U.S. and Canada since the signing of the Automotive Products Trade Agreement of 1965, better known as the Canada-US Auto Pact, with Mexico added into the highly complex ecosystem since the North American Trade Agreement (Nafta) came into force in 1994. In essence, the agreements created a much larger market where economies of scale made auto manufacturing far more efficient and profitable while keeping prices down. Mexico accounted for around one-fourth of the North American production volume in 2023, and Canada one-tenth.

"The automotive industry relies heavily on cross border supply chains, particularly with Canada and Mexico, which means new tariffs could increase production costs and put direct pressure on sales and margins. Most major automakers depend on imported components such as engines, transmissions, wiring harnesses, and aluminum parts, to keep production running smoothly," said Aylin Basom, CEO of online sourcing platform Supplier.io, in a March 26 statement. "If these become more expensive or harder to source, the added costs will inevitably flow downstream to consumers."

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Asked at a press conference live-streamed on YouTube from the White House if there was any chance that he would reverse course, Trump said no. "This is permanent," he said, adding: "But if you build your car in the United States there is no tariff."