A 2025 deal that capped EU auto tariffs at 15% is in jeopardy after President Donald Trump said he will raise US tariffs on cars and trucks imported from the European Union to 25% next week. He said the move responds to what he described as EU non-compliance with the trade pact and told reporters vehicles built in US plants would be exempt. The White House said the EU has failed to make substantial progress on agreed commitments, a step that could prompt EU countermeasures.

Trump's announcement

President Donald Trump wrote on Truth Social on Friday that he will increase tariffs on EU cars and trucks to 25% starting next week. He said the hike is "based on the fact the European Union isn't complying with our fully agreed to Trade Deal."

At a later White House briefing, the president told reporters the tariffs are intended to push global carmakers to build more vehicles in the United States. "If they produce Cars and Trucks in U.S.A. Plants, there will be NO TARIFF," he wrote.

A White House official said the EU has "failed to make substantial progress on their agreed-upon commitments" under the trade agreement. The official added that the president reserves the right to adjust tariff rates if trade partners fail to abide by commitments.

Where the 25% figure sits in past US policy

The 25% rate isn't new to US auto policy. The administration broadly implemented 25% tariffs on vehicles and certain auto parts last year under Section 232 citing national security.

Those levies remain in place, the administration has said.

Separately, after a Supreme Court ruling in February, parts of the president's earlier tariff plan were struck down. The high court found in a 6-3 decision that the International Emergency Economic Powers Act doesn't authorize the president to impose tariffs. That ruling left legal questions over the authority used for several global levies.

In response to that decision, the president said he had signed an executive order establishing a 10% global tariff under Section 122 of the Trade Act of 1974, which carries a 150-day time limit. He later said he would raise the global rate to 15%.

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How this affects the EU-US trade deal

Last year the US and the EU struck a framework that capped tariffs on most auto imports at 15%. The deal also included commitments on tariffs for other goods and improved market access for certain agricultural products. EU lawmakers gave conditional approval to parts of the agreement earlier this year, but full implementation requires further steps at member-state level.

The president's new announcement clashes with that 15% cap. EU officials say they're implementing commitments "in line with standard legislative practice" and keeping Washington informed. A European Commission spokesperson said the bloc remains "fully committed to a predictable, mutually beneficial transatlantic relationship" and would "keep our options open to protect EU interests" should the United States take measures inconsistent with the joint statement.

Winners and losers in the auto sector

European automakers that import a large share of US sales from plants in Europe could face the biggest hit. Mercedes, BMW and Volkswagen were named by analysts and news reports as likely to be most affected because they ship many vehicles from European factories into the United States.

Trump framed the tariff as a nudge toward more US production. He said more than US$100 billion is being invested in new automobile and truck plants, a figure he called record-setting. The administration argues that tariffs will encourage those firms to accelerate US-based output, even if production costs rise.

Dealers and parts suppliers are watching closely. Higher tariffs raise consumer prices on imported cars. They also make European models less competitive versus US-built rivals. That could shift sales mix and profit margins for import-heavy brands. It could also change how carmakers route production and source parts.

The EU has prepared for the possibility of US measures. Officials have discussed lists of US goods that could be targeted if talks break down. A spokeswoman for the European Commission said Brussels reserves the right to take countermeasures should the United States raise tariffs as announced.

Trade retaliation would raise costs for certain US exporters and escalate a transatlantic trade dispute. The 2025 framework was designed to reduce friction by capping duties and opening new market access. A reversal to a 25% rate would complicate that objective and require new negotiations or legal responses from the EU.

Legal constraints matter. The Supreme Court ruling narrowed the president's toolbox for imposing tariffs via emergency powers. The Trade Act measure the administration used to place a temporary 10% global tariff carries a fixed time limit of 150 days. This administration has at times shifted between legal authorities in response to court rulings.

The announcement didn't detail the legal mechanism the administration will use to raise the EU auto rate to 25%. That omission leaves open questions about implementation timing and potential litigation. Courts could again become a forum for firms or trading partners to challenge a tariff increase.

Financial markets could respond to a clear path toward higher auto tariffs with stock moves in carmakers and parts suppliers. Shares of firms that rely on imported models may face pressure. US manufacturers that compete with European imports might see relief, at least in pricing.

Bond and currency markets could also react if trade tensions drive a broader risk-off move. Tariff-driven cost increases tend to show up in margins and consumer prices. Investors will watch comment from EU capitals and any formal steps Brussels takes to retaliate.

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A White House official said the EU has "failed to make substantial progress" on the trade deal; a European Commission spokesperson warned Brussels would "keep our options open to protect EU interests."

This article was created with AI assistance.