U.S. President Donald Trump announced Wednesday a 25% tariff on all cars not made in the United States. However, vehicles assembled in Mexico with U.S. content will be partially exempt, effectively lowering the tariff rate on Mexican-made vehicles.

The tariff, set to take effect on April 3, will also apply to certain auto parts. However, Mexican parts that comply with the United States-Mexico-Canada Agreement (USMCA) will remain untaxed—at least until a new process is implemented to assess their non-U.S. content.

A Major Blow to Mexico’s Auto Sector

Mexico exported approximately 2.9 million vehicles to the U.S. last year, generating over $181 billion in revenue. More than 80% of Mexican vehicle exports go to the U.S., making the tariff a significant challenge for the industry.

The White House stated that Trump invoked Section 232 of the Trade Expansion Act of 1962, claiming that automobile imports pose a threat to U.S. national security. The new tariff applies to sedans, SUVs, minivans, cargo vans, light trucks, and key auto parts like engines and transmissions.

Despite calling the tariff “modest,” Trump emphasized that U.S.-made parts in foreign-assembled cars will not be taxed. “For the most part, I think it’s going to lead cars to be made in one location,” he said.

How the Tariff Will Be Applied to Mexican Cars

The White House clarified that under the USMCA, automakers can certify their U.S. content, and only the non-U.S. portion of a vehicle’s value will be taxed. This means that if a Mexican-assembled car contains 40% U.S. content, it will face an effective tariff of 15% rather than the full 25%.

Mexico’s Economy Minister Marcelo Ebrard stated that the government would push for preferential treatment, emphasizing that Mexico provides 40% of the parts used in U.S. auto plants. President Claudia Sheinbaum plans to issue a formal response on April 3.

A Violation of USMCA?

Guillermo Rosales, president of the Mexican Association of Automotive Distributors (AMDA), argues that the tariff contradicts the USMCA, which allows tariff-free entry for cars with at least 75% North American content. Former Economy Minister Ildefonso Guajardo called the move a shift from regional integration to national origin rules, labeling it a clear violation of the agreement.

Eric Ramírez, an automotive industry analyst, warned that the tariff could mark “the end of the USMCA and three decades of auto sector integration.” He also pointed out the complexity of distinguishing between U.S. and North American content since many parts cross borders multiple times during production.

Economic Consequences for Both Countries

The tariff is expected to add around $6,000 to the retail price of Mexican-assembled cars in the U.S., such as the Toyota Tacoma and Chevrolet Equinox. Given that Mexico’s auto industry employs about one million people and accounts for 5% of the country’s GDP, the impact could be severe, especially in northern states and the Bajío region.

Trump argues that the tariff will generate up to $1 trillion in revenue for the U.S. over the next two years and encourage automakers to relocate production. However, critics argue that the costs will ultimately be borne by U.S. businesses and consumers.

Richard Mojica, a customs lawyer at Miller & Chevalier, explained that the tariff will be paid by U.S. importers, contradicting Trump’s claim that foreign countries will bear the burden.

With tensions rising, Mexico’s government is preparing its response, and the fate of the USMCA may be at stake.