The international auto trade highway has reached a rough patch, and it’s not for potholes alone. With tariffs increasing, alliances realigning, and policies becoming stricter, car manufacturers worldwide are scrambling to avoid regulatory pitfalls. As markets shift toward localization and others form new alliances, automakers must navigate the complex web of tariffs, treaties, and geopolitics through a careful strategy and flexibility. These are 25 cross-border car deals that are now in jeopardy:
The USMCA Shake-Up: North American Auto Deals Under Pressure
The United States-Mexico-Canada Agreement (USMCA) was touted as a new version of NAFTA; however, it has introduced new complexities to the automotive supply chain. One of the key requirements is that 75% of a vehicle’s parts must come from North America to be eligible for zero tariffs, an increase from 62.5% under NAFTA. Additionally, 40-45% of automotive content must be produced by employees earning at least $16 an hour, which has led to labor cost differences, particularly in Mexico. Automakers are facing cost hikes of up to 7% per vehicle, and some are reconsidering their North American assembly operations. U.S. imports of Mexican cars decreased 4.2% from year-earlier levels in Q1 2024, indicating caution and reshuffling among producers.
China’s EV Exports Brunt the Heat in Europe
China’s dominance of the electric vehicle (EV) market is facing growing pushback in Europe, particularly on charges that state subsidies are distorting the market. To this, the EU has proposed tariffs ranging up to 38.1% on Chinese EVs, in addition to a 10% existing import levy. With over 27% of China’s EV exports destined for Europe in 2023, this tariff will result in an average increase of €3,800 per vehicle. This translates into significant changes in approach for those volume-reliant brands, including BYD and NIO, or those that are otherwise hastening to start local manufacture. Industry sources estimate that as much as €2.5 billion in trade value is at risk annually.
German Luxury Cars and the U.S. Market—A Tense Tango
German manufacturers such as BMW, Mercedes-Benz, and Audi are feeling the heat as U.S.-EU tensions simmer. While German luxury vehicles account for 13% of all U.S. luxury vehicle sales, threatened U.S. tariffs of up to 25% would increase the cost of a new Mercedes by $20,000 to $30,000. Germany exported more than 450,000 automobiles to the United States in 2023, representing a potential annual exposure of $22 billion. In anticipation, automakers are expanding their U.S. plants, as BMW invested $1.7 billion in South Carolina to avoid tariffs, but they face rising operational costs in the process.
Japan’s Compact Car Exports Stalled by Rising Import Duties
Japan’s kei cars and compact vehicles, which were once the epitome of budget motoring overseas, are no longer as popular with higher import tariffs. The U.S., an importer of more than 1.5 million Japanese cars in 2023, is mulling the imposition of an 18% tariff on overseas compacts. That would increase costs by $2,000 to $5,000 for each car, eliminating the cost-benefit. Japan’s overseas car exports declined by 6.3% in the first quarter of 2024, and several automakers have reduced their overseas allocations. Moreover, Japan’s hesitation to shift production has exposed it to these trade shifts.
Brexit Fallout: UK-EU Automotive Trade Gets Bumpier
Post-Brexit trade deals have introduced friction to UK-EU automotive transactions. From 2024, cars that do not comply with local content requirements (a minimum of 45% EU or UK content) will be subject to 10% tariffs, which can amount to £2,000-£5,000 per car. Consequently, UK car exports to the EU fell by 14.8% in the first half of 2024, prompting companies such as Stellantis and Vauxhall to threaten to relocate their production entirely. The UK’s car manufacturing production dropped to its lowest level in 12 years, partly due to these obstacles. Experts estimate that more than 100,000 units a year can be lost if no agreement is reached. Before Brexit, 54% of every UK-made vehicle was sold within the EU, now it is around 37%.
Korean Carmakers Navigate Shifting U.S. Trade Policies
Hyundai, Kia, and Genesis are reassessing their export strategies as the U.S. revamps its tariff policies to favor domestic production. The Inflation Reduction Act (IRA) bars most Korean electric vehicles (EVs) from receiving the federal EV tax credit unless they are manufactured in North America. As a result, Hyundai’s U.S. EV market share dipped from 6.8% to 5.1% in early 2024. In response, the company is rushing to complete its $5.5 billion EV plant in Georgia, hoping to mitigate tariff exposure. Korea’s auto exports to the U.S. still hit $23 billion in 2023, but policy-driven shifts could make 2025 a different story.
Mexican Manufacturing Mayhem: Tariff Talk Threatens Production Chains
Mexico, the workhorse of North American automotive manufacturing, finds itself caught in a political and economic tug-of-war. With over 90% of Mexican-produced vehicles exported and 75% of those to the United States, even slight changes in tariff policy can have significant ripple effects. Increased labor cost obligations under the USMCA and potential retaliatory tariffs resulting from diplomatic tensions led to a 6.7% reduction in foreign direct investment in Mexico’s automotive industry in 2024. Automakers such as Ford and Volkswagen are now considering whether or not to relocate production northward or face hefty fines.
Canadian Auto Parts Suppliers Hold Their Breath
Canada’s position in the international automotive market is largely dependent on its parts production, which contributes approximately $35 billion annually to the economy. Nevertheless, emerging U.S. and international protectionist forces are endangering this sensitive balance. Approximately 60% of Canadian exports of auto parts are destined for the U.S., and any interference would put more than 100,000 Canadian jobs at risk. With the U.S. debating localized sourcing requirements, Canadian companies may lose as much as 15% of their revenue by the end of 2025. Tier-2 and Tier-3 small suppliers are the most vulnerable, with at least 22% of them experiencing revenue loss in Q1 2024 alone. One vehicle produced in North America will have more than 4,000 components, some of which are sourced from Canada.
India’s Auto Exports to the U.S.: Dream or Detour?
India’s ambitions to become a global automotive export hub are facing a harsh reality check in the U.S. Due to the lack of a bilateral trade agreement, Indian vehicles are subject to tariffs of up to 25%, making cost-competitive cars like those from Tata and Mahindra nearly nonviable in the U.S. market. India only shipped 11,000 vehicles to the U.S. in 2023, down from 4.9 million worldwide. In the absence of tariff relief, Indian U.S. penetration is likely to remain under 1% of overall auto imports. Indian automakers are turning to other markets or contemplating U.S. assembly, each of which weakens their price competitiveness.
Batteries in Electric Vehicles—The New Tariff Battle
Tariffs on EVs are not the sole battlefield; batteries are now in the spotlight. The United States has imposed new restrictions and tariffs on lithium-ion batteries from China, which today power more than 65% of the world’s electric vehicles (EVs). The measure is aimed at promoting local production but may increase EV prices by between $1,200 and $3,000 per vehicle, depending on the battery size. Automakers are racing to establish local gigafactories, but the switch will be years in the making. The average EV price in the U.S. in 2024 increased by 6.5%, partly due to battery tariffs. One Tesla Model 3 battery contains more than 7,000 discrete lithium-ion cells, the majority of which are still sourced from Asia.
Australia and the U.S.: The FTA Tested by Car Deals
Even with a Free Trade Agreement (FTA) between Australia and the United States, the automotive trade is facing new challenges. Although U.S. tariffs on Australian vehicles are low, Australia’s luxury car tax (LCT), which imposes a 33% levy on vehicles priced above AUD 71,849, is increasing the cost of American imports. In the meantime, U.S. policy shifts have resulted in delays for homologation and certification of Australian vehicles, slowing exports by 11% year-over-year. Australian exporters of cars also struggle to comply with progressively tightening U.S. emissions controls, and bilateral auto product trade declined by $430 million during 2023. Australia no longer manufactures cars locally and, as a consequence, is one of the world’s most highly developed economies, which is largely dependent on imported cars.
Italian Exotics Encounter Tougher Prices in Export Markets
Italian exotic supercars, such as Ferrari, Lamborghini, and Maserati, have been in cult status globally, but new tariff increases are now slamming the brakes on their popularity. As the U.S. has imposed new tariffs ranging from 10% to 25% on foreign luxury vehicles, the typical price of an Italian exotic car in the United States could increase by $60,000 to $100,000, depending on the vehicle model. Considering the U.S. accounted for 29% of Ferrari’s global sales in 2023, that’s a massive dent in their customer base. Even emerging markets like China, which previously welcomed Italian flair, are tightening their luxury import policies, imposing taxes of up to 40%. This double-edged tariff war dampened demand and pressured Italian automakers to consider offshore assembly. Despite the increased expenses, Lamborghini was still able to sell 10,112 cars worldwide in 2023, demonstrating that exclusivity sometimes trumps economic considerations.
French Automakers Put North American Expansion on Hold
Peugeot, Citroën, and Renault have long courted a return to North America, but rising tariffs and stricter U.S. regulations have eroded the momentum. PSA Group (now Stellantis) had previously hinted at a return to the American market by 2023. Heightened regulatory complexity under the USMCA, combined with the absence of tariff-free entry, has redirected French automakers’ attention to more accessible markets, such as Africa and Southeast Asia. With an average U.S. homologation cost of $10 million per vehicle, the majority of French brands are opting to either wait or abandon the market altogether.
Vietnam’s VinFast and the Uncertain Road Ahead
VinFast burst onto the world stage of electric vehicles (EVs) with grand plans and splashy ads, but its American experience has been bumpy. Even after building a $4 billion factory in North Carolina, which is set to open in 2025, VinFast is facing increasing woes. U.S. tariff policies exclude imported EVs from federal tax credits, rendering their models less competitive. Additionally, customer satisfaction and quality issues have impacted early sales. VinFast sold fewer than 3,000 EVs in the U.S. in 2023, and regulatory challenges and geopolitical tensions may further delay or hinder its American ambitions. VinFast’s American launch was so buzzed that its corporate parent’s value briefly surpassed those of Ford and GM, only to plummet by more than 90%.
U.S.-Turkey Auto Trade: From Growing to Groaning
What was once an emerging alliance, the U.S.-Turkey automotive trade, has encountered dire potholes. Political tensions ranging from defense sales to sanctions have prompted retaliatory tariff threats. Turkey ships more than $10 billion worth of vehicles annually, primarily to Europe; however, the U.S. is a rapidly expanding market, particularly for Ford’s Kocaeli-made Transit vans. Threats of new U.S. tariffs and Turkey’s potential shift toward BRICS alliances could now limit future trade. Industry experts caution that if tariff levels increase by even 10%, Ford could redirect production to Europe or Mexico.
Luxury Imports to South America Take a Hit
The demand for luxury vehicles in South America, particularly in Brazil, Chile, and Argentina, has been declining due to import levies as high as 85%. In 2024, Brazil raised its IPI (tax on industrialized products) on imported luxury cars from foreign countries, directly targeting brands such as Porsche, Lexus, and Jaguar. Argentina’s foreign exchange controls also render luxury imports all but impossible without government authorization. Therefore, luxury automobile sales throughout the region fell by 12% in 2023. Local retailers are turning instead to semi-luxury and locally assembled models. In Brazil, consumers of luxury imports tend to pay more taxes than the true market value of the vehicle, so a $ 100,000 BMW becomes a $ 200,000 purchase.
Russia’s Auto Trade Deals in Deep Freeze
Western sanctions after the invasion of Ukraine have effectively iced Russia’s auto trade. After being a leading destination for European and Japanese cars, Russia experienced a 75% decline in auto imports from 2021 to 2023. Moscow has, therefore, resorted to Chinese brands, which now dominate its market for new cars, accounting for more than 60%. Even local production has suffered a collapse due to shortages of imported components and a lack of technical expertise. Attempts to revive local production with Iran and China have been inconclusive.
ASEAN Agreements Ensnared in Red Tape
The ASEAN Free Trade Area (AFTA) was designed to facilitate the trade of automobiles across Southeast Asia. However, inconsistencies in emissions controls, safety standards, and local content requirements have created a regulatory labyrinth. Thailand, the region’s automotive capital, ships more than 1 million cars each year, but navigating tariff exemptions, certificates of origin, and port bans is required to transport a car from Bangkok to Manila. Malaysia and Indonesia have also added new local value content regulations, making compliance even more difficult.
U.S.-Brazil Auto Tensions Rise
The U.S. and Brazil have enjoyed an imbalanced auto relationship for years, as Brazil sells ethanol but imports autos. However, recent moves by the U.S. to impose tariffs on steel and aluminum imports from Brazil triggered a tit-for-tat retaliation in the auto market. Brazil is now threatening to slap more import taxes on U.S. cars and auto parts. While Stellantis and GM, the major players in Brazil, are warning that increased tariffs will cost thousands of domestic jobs and lead to factory closures, the automotive trade deficit, estimated at $3.6 billion in 2023, could grow larger if no deal is struck. Brazil has its own “flex-fuel” car market, with more than 85% of vehicles sold capable of operating on gasoline and sugarcane ethanol.
South African Automotive Exports Under Threat
South Africa’s automotive sector, which accounts for 6.4% of its GDP, is heavily reliant on exports, particularly to the EU and the UK. However, since new EU policies on carbon neutrality and post-Brexit shifts in UK trade have led to expensive compliance requirements, South Africa’s exports of more than 350,000 vehicles per year are threatened. Emissions-driven import bans are likely to invalidate internal combustion versions soon. Unless local production shifts toward electric vehicles (EVs), experts predict that export volumes could decline by 40% within the next decade.
British Sports Cars: Tariffs Knock the Wind Out of Their Sales
Aston Martin, Lotus, and McLaren are icons of British automotive excellence that are feeling the squeeze from Brexit and global trade shifts. EU sales fell by 18% in 2023, and proposed U.S. tariffs would boost costs by $15,000–$25,000 per unit. These brands also utilize European and Asian handcrafted parts, which means they frequently fall below local content requirements. Even though they’re expensive, buyers are increasingly refusing additional tariffs.
The Canada-EU Agreement and Renegotiation Threat
The EU-Canada Comprehensive Economic and Trade Agreement (CETA) was hailed as a landmark in free trade in 2017. However, by 2024, auto industry leaders on both sides are complaining. Europe grumbles about Canada’s Buy North American policies, which are included in EV subsidies, while Canada worries about EU emissions tariffs. Automakers threaten that if CETA is renegotiated without auto trade exemptions, it could lead to new duties on vehicles and their components. Through the end of 2024, EU automakers exported more than $2.1 billion in vehicles to Canada.
Middle East Markets and Auto Trade Realignment
The Gulf states of Saudi Arabia and the UAE are remaking auto trade conventions. Formerly reliant on Western imports, they’re now making deals with Chinese, Korean, and Indian producers for electric vehicles (EVs) and fleet cars. Saudi Arabia’s Public Investment Fund owns a stake in Lucid Motors and is constructing a $500 million factory. In the meantime, high tariffs and strict import levies on older vehicles encourage consumers to opt for new ones, which the government subsidizes. The change could replace Western brands that previously controlled the luxury and SUV segments.
Latin American Assembly Plants Overhaul Supply Chains
Brazil, Mexico, and Argentina have long been home to assembly plants operated by international automakers. But new global sourcing regulations, political turmoil, and port inefficiencies are discombobulating operations. Stellantis and Toyota have begun “nearshoring” key components from the U.S. or Europe, rather than Asia, to comply with stricter origin regulations. However, with inflation and labor unrest rising in several countries, automakers may reduce future investments unless reforms are enacted.
The Future of Global Car Trade—Localization vs. Globalization
The automotive industry is at a major crossroads. While globalization once held out the promise of cheaper, quicker car manufacturing, trade wars, pandemic disruptions, and climate regulations are causing manufacturers to localize. From Tesla constructing giga-factories on every continent to Toyota opening U.S. operations, the direction is clear with proximity equalling power. However, complete localization comes at a price, as duplicating supply chains can increase manufacturing costs by 10–20%. As regional trade blocs become more restrictive, carmakers must decide whether to go global and risk tariffs or remain local and deal with scale inefficiencies.
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