President Donald Trump signed a proclamation to implement a 25% tariff on auto imports and pledged harsher punishment on the E.U. and Canada if they join forces against the U.S., expanding a trade war and triggering threats of retaliation.

“What we’re going to be doing is a 25% tariff on all cars that are not made in the United States,” Trump said at the White House on Wednesday as he pushed ahead with a program seeking to bring more manufacturing jobs to the U.S.

Hours later, Trump suggested further tariffs would be imposed on the European Union and Canada if they worked together “to do economic harm” to the U.S. The reaction in currency markets including the euro and Canadian dollar was muted, and the S&P 500 fluctuated to start the day Thursday.

Taken together, Trump’s escalating trade actions appear likely to deepen tensions with key trading partners even before his promised so-called reciprocal tariffs on April 2.

The auto tariffs will come into effect at 12:01 a.m. Washington time on April 3, initially targeting fully assembled vehicles. By May 3, the scope will expand to include major automobile parts like engines, transmissions, powertrain components, and electrical systems, with the potential to broaden further as necessary, according to the proclamation.

Shares of Toyota Motor Corp., Stellantis NV, Valeo SE, Porsche AG and Mercedes-Benz Group AG all declined between trading in Tokyo and Europe. In U.S. trading, Toyota’s depository receipts as well as shares of Ford Motor Co. and General Motors Co. were also lower, while Tesla Inc. inched higher. The MSCI World Automobiles Index has tumbled 22% so far this year.

Trump cast the tariffs as “permanent” and said he was not interested in negotiating any exceptions. The tariffs will be on top of levies already in place, White House Staff Secretary Will Scharf said, and the administration projects that the tariffs would result in $100 billion of new annual revenue to the U.S.

Swift response

The E.U. swiftly criticized Trump’s latest move, with European Commission President Ursula von der Leyen warning that Europe would defend its economic interests while continuing to pursue diplomatic solutions.

“We will now assess this announcement, together with other measures the U.S. is envisaging in the next days,” von der Leyen said in a statement.

Canadian Prime Minister Mark Carney said the U.S. tariffs are a “direct attack” on people who work in the auto industry and violate the U.S.-Mexico-Canada trade agreement.

Ontario Premier Doug Ford, the leader of the province that’s the home of most of Canada’s auto industry, said it was virtually guaranteed that Canada would retaliate. He urged Carney to “target American cars” — U.S.-manufactured vehicles have a dominant share of the Canadian vehicle market.

“We’re going to make sure that we inflict as much pain as possible to the American people without inflicting pain on the Canadian population,” the premier said.

Japanese Prime Minister Shigeru Ishiba said he won’t rule out countermeasures against auto levies, while South Korea’s government said it will come up with emergency measures to help the auto industry.

Data out Thursday showed the U.S. goods-trade deficit narrowed slightly in February on stronger exports — particularly cars. Imports, however, remained elevated, keeping the overall trade gap near a record.

Bracing for more

The auto tariff was unveiled ahead of an even broader announcement of so-called reciprocal tariffs expected April 2 — a bid to drive down other countries’ barriers and shrink U.S. trade deficits.

Those tariffs will see the U.S. apply rates on a country-by-country basis to counter barriers levied on American imports. Trump, though, has signaled some trading partners may receive possible exemptions or reductions in duties.

In a fact sheet about the auto tariffs, the White House said importers whose vehicles were covered by USMCA, the trade agreement negotiated in Trump’s first term with Canada and Mexico, would be given the opportunity to certify their U.S. and that the 25% levy will only apply to the value of their non-U.S. content.

A White House official, discussing the tariffs on the condition of anonymity, said the administration would develop a plan to deal with parts that cross the border multiple times.

Other industry-specific tariffs are also in the works, with Trump threatening levies on lumber, semiconductors and pharmaceutical drugs.

“That’s the real Liberation Day of America, and that’s going to be on April 2, and I look forward to it,” Trump said Wednesday.

The auto levies mark a significant expansion of the president’s trade fight, and likely ensnare some of the biggest automotive brands in countries including Japan, Germany and South Korea, all major U.S. trading partners. The move risks disrupting operations for North American automakers, which rely on highly integrated chains across the U.S., Mexico and Canada.

Still, the tariffs will hit the non-U.S. content in some of Detroit’s most recognizable and profitable models. GM imports some Chevrolet Silverado pickup trucks from plants in Mexico and Canada, while Stellantis makes models including the Jeep Compass SUV in Mexico.

Ford produces a larger share of its U.S. sales domestically than its Detroit rivals, but it won’t be spared. It builds the entry-level Maverick small pickup in Mexico as well as the Bronco Sport SUV.

Autos Drive America, which lobbies for carmakers based outside the U.S. including Toyota and BMW AG, warned the new levies will do the opposite of what Trump wants.

“The tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers and fewer manufacturing jobs in the U.S.,” Jennifer Safavian, the group’s president, said in a statement.

Trump, though, has argued the tariffs will help spur growth in the domestic auto sector and force companies to move more production to the U.S.

“Before I was elected, we were losing all of our plants that were being built in Mexico and Canada and other places. Now those plants largely have stopped and they’re moving them to our country,” he said.

United Auto Workers President Shawn Fain applauded the move in a statement.

“Ending the race to the bottom in the auto industry starts with fixing our broken trade deals, and the Trump administration has made history with today’s actions,” Fain said.

Trump’s actions are poised to make cars more expensive for U.S. consumers already uneasy about inflation and amplify worries that his tariffs will pitch the economy into a downturn.

Tariffs will likely raise prices of foreign-made cars, but even U.S.-made vehicles would see price increases if supplies and parts are hit by levies or if supply chains are cut off from manufacturing in lower-cost countries.

U.S. car and light truck imports were valued last year at more than $240 billion.

Analysts have estimated that new tariffs could increase new-car prices by thousands of dollars per vehicle. One recent study found that tariffs on Canada, Mexico and China would raise the cost to produce a crossover vehicle by about $4,000, while a U.S.-made EV would jump by about $12,000.

Trump is betting that his tariff moves will remake U.S. industry and has claimed his approach is already working. Just this week, he hosted executives from Hyundai Motor Co. at the White House and hailed the South Korean automaker’s $21 billion U.S. expansion plan as “a clear demonstration that tariffs very strongly work.”

But Trump’s imposition of trade duties has been erratic, marked by delays and suspensions as he extracts policy concessions from trading partners. Those shifts have rattled markets and made business leaders uneasy as they face investment and hiring decisions.

Trump imposed 25% tariffs on imports from Mexico and Canada earlier in March but delayed those for a month on goods — including automobiles and parts — that are covered by the North American trade deal USMCA. Auto executives from Detroit’s Big Three had lobbied Trump for relief, saying they needed more time to adapt given the close integration of the sector across the continent.

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(With assistance from Jordan Fabian, Blaise Robinson, Margaryta Kirakosian, Malcolm Scott, Molly Smith, Chelsea Mes, Yoshiaki Nohara, Meghashyam Mali, Keith Naughton and David Welch.)

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