Trump threatens new EU auto taxes that could drive up prices

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(The Center Square) – President Donald Trump threatened to raise tariffs on European Union cars and trucks to 25%, accusing the EU of violating a trade agreement the bloc says lost its legal foundation after the U.S. Supreme Court struck down the authority used to negotiate it.

Trump announced the move Friday on Truth Social, saying the EU "is not complying with our fully agreed to Trade Deal" and pledging no tariff for automakers that produce vehicles in American plants.

The announcement came as American consumers were already stretched by high borrowing costs and eroding confidence. The average auto loan rate hit 9.70% in March, and the typical monthly car payment reached $752, according to Cox Automotive. University of Michigan consumer sentiment fell to 49.8 in April – a new low – as gas prices topped $4 per gallon for the entire month.

Research suggests consumers would bear most of any new tariff's cost. A National Bureau of Economic Research paper found that nearly the entire tariff burden is passed on in the form of higher prices, a finding consistent with research from the Kiel Institute for the World Economy.

Goldman Sachs projected American consumers will pay 55% of tariff costs, U.S. businesses 22% and foreign exporters 18%. A Duke University study found Americans paid more than the tariff amount on European goods during a 2019–21 trade dispute.

A Center Square Voters' Voice Poll conducted in March found 42% of voters already believe American consumers are primarily paying the cost of Trump's tariffs, compared to just 12% who think foreign countries bear the burden.

The EU's car exports to the United States fell 21.4% in value in 2025 to about $36.3 billion, a decline the European Automobile Manufacturers' Association (ACEA) attributed directly to existing U.S. tariffs. ACEA, which represents 17 major automakers including BMW, Mercedes-Benz, and Volkswagen, said the threatened escalation would be broadly damaging.

"The alternative, a return to 27.5% tariffs – the rate that applied before the Turnberry Deal – and an open-ended trade dispute, would be deeply damaging for Europe's automotive manufacturers, their workers, and the broader EU economy," said Sigrid de Vries, ACEA's director general.

De Vries said around 670,000 new vehicles were exported from the EU to the United States in 2025, making the U.S. Europe's second-largest export market. About 80,200 of those vehicles were battery-electric. European-headquartered manufacturers build about 830,000 vehicles annually in the United States, exporting roughly half – including back into the EU – making transatlantic stability important to both sides of the supply chain.

Trump's threatened tariff would escalate beyond the Turnberry Deal, a trade agreement he announced in July 2025 after a meeting with European Commission President Ursula von der Leyen at his golf resort in Turnberry, Scotland. That deal set a 15% tariff on EU goods and called for the EU to buy $750 billion in U.S. energy and invest $600 billion in the United States.

The deal unraveled in February after the U.S. Supreme Court ruled 6-3 that Trump had exceeded his authority under the International Emergency Economic Powers Act. The EU froze the agreement, saying the legal instrument used to negotiate it was "no longer available."

"The ruling by the Supreme Court is clear and unequivocal. Its implications cannot be ignored, and business as usual is not an option," said Bernd Lange, chair of the European Parliament's International Trade Committee.

Trump responded by threatening higher tariffs on countries that cited the ruling to walk away from their deals.

A White House official said Friday the EU had failed to meet its commitments under the Turnberry Deal, citing auto trade barriers, digital services, carbon taxes and other provisions.

"The White House has always been clear that the President reserves the right to adjust tariff rates if our trade deal partners fail to abide by their commitments," the official said. "The President will accordingly be adjusting Section 232 auto tariffs on the EU."

The administration confirmed the tariff would be applied under Section 232 authority.

Treasury Secretary Scott Bessent had previously said the administration would rely on Section 232 and Section 301 authorities, which he said had been "validated through thousands of legal challenges." The Department of Commerce confirmed in June 2025 that Section 232 auto tariffs of 25% were already in place under a March 2025 proclamation.

Two lawsuits pending before the U.S. Court of International Trade separately challenge Trump's use of Section 122 of the Trade Act of 1974 for a 10% global tariff imposed after the Supreme Court ruling.

Phillip Magness, a senior fellow at the Independent Institute, said Trump's legal strategy could again face Supreme Court review.

"Trump has effectively adopted a strategy of statute-shopping, meaning he's looking to reenact the same agenda that the court struck down by retrofitting it into different clauses of law," Magness told The Center Square. "There's a good chance we will have another round of court proceedings that could reach the Supreme Court."

The Alliance for Automotive Innovation, a U.S. industry trade group, declined to comment. The Department of Commerce did not respond to a request for comment.

A tariff is a tax on imported goods paid by the person or company that imports the goods. The importer can absorb the cost or pass it on to consumers through higher prices.