US President Donald Trump softened some of his automotive tariffs on Tuesday, following industry complaints.
Trump signed off on orders that will stop separate levies “stacking” on top of each other, thereby reducing the overall tariff level on vehicle imports.
The orders state that vehicles assembled in the US will qualify for partial reimbursements on parts-related levies for two years.”We just wanted to help them during this little transition,” Trump said. But “basically, they’re paying 25%,” he said of the carmakers.
At a rally in Michigan to mark 100 days in office, Trump told the crowd that automakers were “coming from all over the world” to open plants in the US. “They all want to come back to Michigan and build cars again, and you know why, because of our tax and tariff policy,” he said. “They’re coming in at levels you’ve never seen before.”
Trump’s orders will reduce the taxes foreign car manufacturers in the US pay, using a formula based on the number of cars they sell and their price. For example, German carmakers’ US plants depend on imports from third countries. German companies also export large quantities of car parts to the US, both as supplies for US carmakers and for the US plants of German carmakers.
Transitional phase
A transitional phase is now planned for the 25% tariffs on components. Manufacturers will be reimbursed up to 3.75% of the value of a vehicle built in the US in the first year, which will fall to 2.5% in the second year. Trump had announced 25% tariffs on imported cars and components.
The duty on finished cars came into force at the beginning of April, with the duty on parts to follow on May 3. Treasury Secretary Scott Bessent said at a White House press conference that the relief would significantly boost US car production.
The step follows warnings from industry that otherwise, there could be drastic negative impacts and significant price increases. Market researchers estimate that around half of the vehicles sold in the US are assembled outside the country. Even US manufacturers produce many cars abroad, in Mexico. Some estimates suggest only 40% to 50% of vehicles built in the US are actually made there.
Automotive sector complaining
Trump’s backpedal comes after weeks of meeting with automaker executives, and a week after a coalition that included GM, Toyota, Volkswagen, and Hyundai sent a letter urging him to drop tariffs on foreign auto parts due to land in May.
American Automotive Policy Council (AAPC) president Matt Blunt today said in response to the executive orders, “American Automakers Ford, GM, and Stellantis appreciate the administration’s clarification that tariffs will not be layered on top of the existing Section 232 tariffs on autos and auto parts.”
“Applying multiple tariffs to the same product or part was a significant concern for American automakers, and we are glad to see this addressed. We will review the details of the executive order closely to assess how effectively it will mitigate the impact of tariffs on American automakers, our domestic supply chains, and ultimately American consumers,” he added. The AAPC represents Ford, GM, and Stellantis.
Independent car industry watchers are less optimistic and friendly. Most economists insist that tariffs will raise car prices and slow auto sales. “The 25% auto tariffs implemented under Section 232 of the Trade Expansion Act aren’t going anywhere,” says an analyst on the specialized website Electrek.
“This White House Fact Sheet is titled, ‘President Donald J. Trump Incentivizes Domestic Automobile Production’. Where’s the incentive? US automakers are just getting hit with the stick once instead of twice, and they’re thanking Trump for it. The carrot that worked as an incentive was Biden’s Inflation Reduction Act, along with the stability that came with it. All this whiplash is terrible for the US and global economy,” he concludes.
