Mercedes-Benz tried hard to be American. It still got hit by tariffs.

“We’re also an American company," he said, highlighting the carmaker’s 11,000 U.S.-based workers and that two of his three children were born in the country.

The German luxury-car brand has worked to bolster its American credentials in recent years, including making sport-utility vehicles in Alabama that get shipped around the world.

But under President Trump’s new auto tariffs, even those made-in-USA vehicles aren’t American enough.

The president last week announced a 25% additional tax on imported cars and car parts, starting on April 3. On Saturday he told NBC News that he “couldn’t care less" if foreign automakers raise their prices for U.S. consumers in response to new tariffs because “people are going to buy American-made cars."

Roughly two-thirds of the 324,500 vehicles Mercedes shipped to dealers in the U.S. last year were imported, and even the popular GLE and GLS SUVs it assembled in Tuscaloosa, Ala., used engines and transmissions from Europe.

New U.S. tariffs could cost the company $1.7 billion this year, according to brokerage Bernstein—14% of expected operating profit. Parts account for roughly a third of the potential impact.

That is before any potential retaliation by U.S. trading partners. Mercedes exports most of the vehicles assembled in Tuscaloosa, exposing it to tit-for-tat tariffs.

China, a key market for the factory’s cars, has already imposed an additional 10% tariff on big vehicles from the U.S., in response to an extra 10% levy on all Chinese products introduced by the White House in February.

Mercedes’s plight is an early illustration of how even foreign companies that have invested billions in local factories can come unstuck at a time of fast-changing trade policies.

The plant in Tuscaloosa was the first major Mercedes plant outside of Germany. It opened in 1997 to serve what was then the world’s largest car market with its favored vehicle type: SUVs. Last year it produced around 260,000 vehicles.

German peer BMW has a similar setup, having also launched a U.S. manufacturing base in the 1990s that covers a minority of local sales while serving as an SUV export hub for the world.

The bets paid off, with rapid U.S. sales growth in the late 1990s and 2000s. European peers that didn’t invest in local manufacturing at the time, such as Audi and Sweden’s Volvo Cars, were left behind.

As more Americans bought their cars, Mercedes and BMW plowed money back into U.S. manufacturing in a virtuous cycle. And with the American taste for SUVs spreading across the world, increasing numbers of their U.S. products were shipped globally. German brands became unlikely American export champions.

One fan was Trump, who in 2005 bought a limited-edition Mercedes-Benz SLR McLaren for more than $465,000, it was reported at the time. The same year, he used a Mercedes-Benz Maybach to get from the church to Mar-a-Lago after his star-studded wedding to Melania.

As president, though, he griped about the growth of Europe’s luxury automakers in the U.S. In his first term, he threatened tariffs on European cars, but never ended up introducing them.

Now that his auto tariffs are finally set to arrive, Germany’s carmakers are having to confront gaping holes in their U.S. localization strategies.

For the 2025-model year, just 10% of the content of the SUVs Mercedes builds in Tuscaloosa comes from the U.S. or Canada, according to official labeling reports. Mercedes said its own analysis points to a U.S. content share of 35% to 40%, using the same methodology. The local-content share of BMW’s U.S. products is just under a third, according to the official reports, which the company declined to comment on.

Having only opened a plant in Chattanooga, Tenn., in 2011, the Volkswagen Group imports most of its namesake brand from Mexico as well as most Audis and all Porsches from Europe.

While the German automakers continue to invest in U.S. production, they can’t easily or quickly localize their entire product lineup and supply chain, given the expense of duplicate factories and tooling.

Mercedes, BMW and Audi occupy a sometimes awkward space between the mass-market car industry of General Motors and Toyota and the luxury world of Ferrari and Lamborghini. The industry calls them “premium" brands.

Unlike Toyota, they don’t sell most models in volumes that can justify local assembly or parts manufacture. At the same time, they can’t simply ship everything from Europe and recoup tariffs from customers or absorb the extra cost, as Ferrari is doing. The Italian sports-car maker said Thursday it would increase prices by up to 10% for some models and reiterated its financial targets for 2025.

Mercedes does have one top-selling model that probably makes financial sense to localize in the U.S.: the GLC. It sold around 59,000 units of its midsize SUV in the U.S. last year, all of them shipped from Bremen, Germany.

Alongside its results in February, the company discussed the potential localization of another product in the U.S. as a “geopolitical hedge." Unless the company finds another product for the Bremen plant, shifting production will create political problems at home, but Trump’s auto tariffs bring fresh urgency to the question.

The shift to electric vehicles complicates the elaborate game of chess automakers must play to optimize their production networks. During Trump’s first term, Mercedes announced a $1 billion investment to get Tuscaloosa ready for EVs that haven’t sold well.

Källenius has campaigned for a different solution to trans-Atlantic trade imbalances: cut tariffs on both sides to zero. Currently, Mercedes pays a 2.5% tax on shipments from Europe to the U.S. and a 10% levy on the SUVs shipped back from Tuscaloosa to Europe.

Fabian Brandt, who heads the global automotive practice for consulting firm Oliver Wyman, expects tariffs to accelerate the German premium automakers’ existing shift away from their old global export model toward local production—but not as fast as Trump might hope.

“It’s often underestimated how many years this industry will take to adapt to this completely new setting," he said. “It will take time and money."

Write to Stephen Wilmot at stephen.wilmot@wsj.com