The euro, the pound sterling, and other risk-sensitive assets tumbled yesterday following news that President Donald Trump had signed an executive order to impose a 25 percent tariff on imported automobiles.
This move will likely escalate the ongoing trade war, which the administration has promoted as a strategy to create more manufacturing jobs in the United States, and sets the stage for a broader wave of tariffs expected next week. "What we're going to be doing is a 25% tariff for all cars that are not made in the United States," Trump said in the Oval Office. "We start off with a 2.5% base, which is what we're at, and go to 25%." "We're going to charge countries for doing business in our country and taking our jobs, taking our wealth, and taking a lot of the things that they've been taking over the years."
The President announced that the long-discussed reciprocal tariffs would take effect on April 2 and that the United States would begin collecting new auto tariffs the following day, April 3.
According to the White House, the tariffs will apply not only to fully assembled vehicles but also to key automotive components, including engines, transmissions, drivetrain parts, and electrical systems. The tariffs on parts will take effect no later than May 3. The list may also be expanded over time to include additional components.
President Trump described the tariffs as permanent and stated that he had no interest in negotiating exemptions. In response, shares of major automakers, including General Motors Co., Ford Motor Co., and Stellantis NV, fell sharply after the close of trading. Toyota Motor Corp. opened Thursday's session with a steep decline as well.
The White House bulletin stated that importers whose vehicles qualify under the USMCA, the trade agreement negotiated during President Trump's first term with Canada and Mexico, will be allowed to certify their products. The enforcement system will be designed in such a way that the 25 percent tariff will apply only to the value of non-American components.
According to White House staff secretary Will Scharf, the tariffs will be introduced in addition to existing levies, and the administration forecasts that the measures will generate $100 billion in new annual revenue for the United States.
Rumors suggest that additional sector-specific tariffs are also under consideration. President Trump has threatened to impose tariffs on lumber, semiconductors, and pharmaceuticals. "That's the real Liberation Day of America, and that's going to be in April 2, and I look forward to it," he declared on Wednesday.
The new auto tariffs clearly represent a significant escalation in the trade conflict and are likely to ensnare some of the world's largest automotive brands in countries such as Japan, Germany, and South Korea—all of which are key United States trading partners. The decision risks disrupting operations for North American automakers that depend on deeply integrated supply chains spanning the United States, Mexico, and Canada.
The foreign exchange market reacted swiftly. The euro and other risk assets fell sharply on the news, and only a modest correction was observed during Asian trading hours.
Regarding the current technical picture for EUR/USD, buyers should now focus on reclaiming the 1.0800 level. Only then it will be possible to target a test of 1.0830. From that point, a rise toward 1.0860 is conceivable, although accomplishing this without the support of major market participants will be quite difficult. The most distant bullish target remains at the 1.0890 high. If the instrument declines, meaningful buying activity is expected only near the 1.0770 mark. Should that level fail to hold, a retest of the 1.0736 low may be necessary, or alternatively, long positions could be considered from 1.0715.
As for GBP/USD, buyers of the British pound must reclaim immediate resistance at 1.2930. Only then will it be possible to aim for 1.2970, although pushing beyond this level will likely prove challenging. The furthest bullish target stands at 1.2999. If the pair declines, sellers will attempt to regain control at 1.2890. A successful breakdown of this area would significantly undermine bullish momentum and could push GBP/USD toward the 1.2865 low, with the potential to reach 1.2835.
