President Trump Rolls Back Auto Tariffs After Auto Firms Raise Alarms

U.S President Donald Trump signed executive orders aboard the Air Force One which not only aim to strengthen the American automotive industry but also reduces the auto tariffs and prevent them stacking on one another. This comes after intense lobbying and discussions with several auto firms who raised concerns that drastic increase in tariffs combined with levies on other parts and raw materials like steel, Aluminium etc could result in reduced manufacturing and job losses along with significant increase in the prices of automobiles. 

Also Read: Donald Trump's Reciprocal Tariffs Likely To Be Relaxed

The reduction in tariff will allow US companies to restructure and reassess their manufacturing plans over the next two years, till they can increase localisation levels in their manufacturing processes. Now US companies will have to pay less import taxes on foreign parts and raw materials but that is dependent on how many units they sell and at what price they sell at. Another reprieve is that companies that already pay tariffs on components and raw materials will not be charged taxes that the Trump administration has put on steel and Aluminium from Canada and Mexico. 

Also Read: Trump Tariffs: Rs. 4.5k Crore Hit Expected For Auto Industry 

The proclamation signed by President Trump says "It offers an offset to a portion of tariffs for automobile parts used in U.S assembled vehicles equal to 3.75 per cent of the Manufacturer's Suggested Retail Price (MSRP) of a manufacturer's U.S. production for the next year (April 3, 2025 to April 30, 2026), and 2.5 per cent of U.S. production the year after (May 1, 2026 to April 30, 2027)". 

For instance, if a manufacturer builds a car in the U.S. that has 85 per cent U.S. or USMCA content, the manufacturer effectively will not owe tariffs on that vehicle's production for the first year. If a manufacturer builds a car in the U.S. that is 50 per cent U.S. or USMCA content and 50 per cent imported from elsewhere, then instead of paying the tariff on the full 50 per cent of the imported car parts, the manufacturer effectively only pays on 35 per cent for the first year.

Also Read: Trump Tariffs A Blessing In Disguise, Says Skoda Auto VW

Although there is still a fair bit of uncertainty among US automakers with respect to the new tariff rules. For example, General Motors, one of the big auto manufacturers in USA, withdrew its earnings guidance for the year and also postponed an investors' call, till the time the company fully understands the new tariff rules and its impact on the its financial outlook for the near and long term future.