We’re talking about trade deals and tariffs today, and throughout the year, this is a topic that has been wildly unpredictable, swinging from one extreme to the next in response to a variety of factors, including everything from public outcry to stock market instability to foreign diplomacy. All of this chaos around tariffs is especially hard-hitting for industries that make expensive products, since a tax based on a percentage of a product’s value is harder for a consumer to swallow when that product has a higher cost.
Other than a house, a car is the most expensive thing that most Americans are likely to buy, so naturally, the auto industry is being heavily affected by the uncertainty. But while we don’t know what will happen next, we can take a look at what deals have already been signed and what they mean for both automakers and drivers looking to shop for their next vehicle. So let’s take a quick trip around the world and see where we’re at as of early August 2025.
The Blanket Tariff Heard ‘Round the Auto Industry
The best place to start our look at how tariffs and trade deals are affecting the industry is with March 26th, 2025. That’s the day when a 25% tariff was announced, affecting all imported cars and trucks, along with automotive parts. Adding a full fourth of a vehicle’s worth to its price tag is clearly a hard pill to swallow, putting the pressure on countries that import a lot of cars into the United States.
In the early days of the tariffs, their purpose was unclear, since two contradictory motives kept being given. Sometimes, it was said that the tariffs were meant to be permanent, keeping import prices high to give domestic automakers an edge at home. Other times, it was said that the tariffs were meant to be temporary, negotiating tactics to bring countries to the table to work out new deals.
As it turns out, the latter has seemed to be more accurate. Many tariffs, including tariffs on vehicles, were postponed to give countries time to come to the table. Eventually, with an August 1st deadline looming, many deals were announced this past July. So let’s take a look at some of the deals that have been made.
Japan (Toyota, Honda, Nissan)
On July 22nd, 2025, a deal was announced, resulting in the tariff on Japanese auto imports dropping from 25% to 15%. That’s a huge drop that will certainly make a difference to consumers. Many Japanese brands, like Toyota and Honda, are particularly known for being affordable and offering drivers a good value, after all. As part of this deal, Japan has agreed to lift its own import restrictions on American-made cars and make $550 billion of other investments in the United States.
While this deal is certainly better than a 25% tariff, there are some details worth putting in context. For instance, it’s worth noting that the previous tariff on Japanese vehicles was a mere 2.5%. This puts the 15% figure in perspective, showing that it’s still quite high, historically. And while it sounds good in theory to open the Japanese auto market up to American automakers, that’s easier said than done. While American drivers have leaned toward large SUVs and trucks in recent years, Japan is full of narrow streets better suited to smaller cars.
European Union (VW, Mercedes, BMW)
Just a few days after the announcement of the Japanese trade deal, a deal with the EU was announced on July 27th. Like Japan, the EU negotiated its automotive tariff down to 15% and agreed to purchase more American products and invest $600 billion in the US in the coming years. One particularly interesting point is that the US and EU have also committed to working to recognize each other’s automotive safety standards, meaning brands potentially will no longer need to manufacture separate US and EU versions of the same car.
South Korea (Hyundai, Kia, Genesis)
As July waned, the dominoes fell even faster. A few days later, on July 31st, a deal with South Korea was announced, and the details should be familiar to you at this point. Tariffs fell to 15% and provisions were included stating that South Korea would invest $350 billion in the United States. It should be noted that this affects more than just the Korean brands, as General Motors has been importing several of its most affordable Chevy and Buick models from South Korea.
United Kingdom (Land Rover, MINI, Jaguar)
The deal with the UK was actually an agreement made much earlier, announced back on May 8th. However, it makes sense to consider it after looking at Japan, the EU, and Korea, since imports from the UK are a much smaller share of the American auto market (in terms of units, Japan makes up 9.5% of the market, the EU is 5.7%, and Korea 4.7%, while the UK is a mere 1.6%).
This deal is also an outlier from the others because of the details, which use a two-tier system. For the first 100,000 cars imported in a year, the UK will get a 10% tariff. Beyond that quota, a 27.5% tariff goes into effect. That limit just about matches the number of vehicles that were imported from the UK to the US in 2024, so assuming business remains about the same, this effectively gives the nation a 10% tariff rate.
North America (Ford, General Motors, Stellantis)
It might seem like American automakers would be happy with the idea of protectionist tariffs, but in fact, the Big Three companies have been some of the most vocal opponents of many of these policies. That’s because the “domestic” manufacturers actually produce more of their vehicles abroad than some “import” brands. This means that it’s hard to tell simply by a brand’s home country which companies will actually be affected by higher taxes on imports.
There are two countries that might not seem too important to the US auto market if you’re thinking in terms of brands, but that are in fact vitally important: Canada and Mexico. You probably can’t name a Canadian or Mexican car brand, but you may well drive a vehicle that was assembled in one of those countries or built with many components made in them. Put together, our North American neighbors produce 24% of the passenger vehicles sold here in the United States.
When the car tariffs took effect on August 7th, no deal had been made with Canada or Mexico, leaving them stuck with the 25% tariff rate and threats of even higher tariffs. American automakers, which build many of their vehicles in those countries, have been advocating for these countries to at least get a 15% rate to help them stay competitive with vehicles made in Japan, South Korea, and the UK. However, Canada and Mexico so far appear unwilling to make a deal.
What Does All This Mean?
To date, consumers haven’t seen much of a spike in car prices. Companies from around the world and across various segments of the market have been absorbing the extra costs of tariffs to avoid turning drivers away. However, there’s only so long that can last. It made a lot of sense when things were in flux and new deals were being announced all the time. As things settle down into a “new normal,” companies will almost certainly start to raise prices to account for the extra money they’re spending on taxes. Since car insurance rates are often based on the value of a vehicle, your insurance bill could go up accordingly.
Of course, nothing is set in stone. There are some cases working their way through the court system regarding some of these tariffs, and new trade deals could still be reached at any moment, bringing rates down eventually. Many manufacturers are also announcing their intention to bring manufacturing lines to the United States to dodge tariffs, although new factories will take time to get up and running. We’ll just have to wait and see.
