President Donald Trump has signed an executive order imposing 25% tariffs on all foreign-made cars, light trucks, and specific auto parts, set to take effect on April 2.
The White House estimates the new duties could generate $100 billion annually. Trump called the move a step toward "Liberation Day" for the US economy, arguing it would promote domestic growth.
While the tariffs primarily target non-US automakers, domestic giants such as Tesla, GM, Ford, Stellantis, which manufacture vehicles abroad, warned of rising supply chain costs.
The executive order covers a broad range of components such as engines, transmissions, and electrical parts, expanding beyond finished vehicles to affect global production networks.
Shares in major US and European carmakers fell following the announcement.
On Thursday morning, Germany's Mercedes-Benz fell 5.7%, Porsche 5.5%, BMW 4.6% and Volkswagen 3.9%, while elsewhere Fiat and Chrysler owner Stellantis was down 5.6%.
Shares in tyre manufacturers were also lower, including Continental and Pirelli.
Japanese automobile manufacturers also fell sharply on Thursday, including Mazda and Subaru.
With autos making up 28.3% of Japan's total exports to the US in 2024 and roughly 3% of Japan's GDP, economists at Nomura said the 25% increase in US tariffs could knock 0.2% off Japan's GDP.