During an executive order signing session in the White House today, President Trump announced a major change in tariffs on the auto industry. [Full Executive Order Here]
The 25% import duty applies on top of any preexisting tariff for cars and light trucks. The 25% tariff also applies to imported car parts. The USMCA trade agreement between the U.S. Canada and Mexico still applies.
If the content of a car assembled in Mexico/Canada contains 50 percent component parts from the USA, the 25% tariff only applies to the final value of the imported components. In this example the tariff rate would be 12.5% of the total value.
The tariff applies to all imported cars and light trucks. Approximately half of all cars sold in the USA are currently American made, the other half are import vehicles from mainly Mexico, Japan, South Korea, Canada and Germany.
This is a very big kick in the teeth to Germany. Previously in a long-term strategy to avoid U.S. tariffs, German automakers invested billions in auto assembly plants in Mexico. Ex. the BMW parts were shipped from Germany and the cars assembled in Mexico. Now that investment is worthless as the vehicle will be taxed at a rate of 25% regardless of whether it is assembled in Germany or Mexico.
Ex.2 High end auto Mercedes currently builds SUVs in the USA in order to avoid the previous 25% tariff; however, they still build cars outside the USA and export them into the USA market. This will likely change quickly, and Mercedes will begin building all cars and SUVs in the USA.
From the Executive Order:
(1) Except as otherwise provided in this proclamation, all imports of articles specified in Annex I to this proclamation or in any subsequent annex to this proclamation, as set out in a subsequent notice in the Federal Register, shall be subject to a 25 percent tariff with respect to goods entered for consumption or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on April 3, 2025, for automobiles, and on the date specified in the Federal Register for automobile parts, but no later than May 3, 2025, and shall continue in effect, unless such actions are expressly reduced, modified, or terminated. The above ad valorem tariff is in addition to any other duties, fees, exactions, and charges applicable to such imported automobiles and certain automobile parts articles.
(2) For automobiles that qualify for preferential tariff treatment under the USMCA, importers of such automobiles may submit documentation to the Secretary identifying the amount of U.S. content in each model imported into the United States. “U.S. content” refers to the value of the automobile attributable to parts wholly obtained, produced entirely, or substantially transformed in the United States. Thereafter, the Secretary may approve imports of such automobiles to be eligible to apply the ad valorem tariff of 25 percent in clause (1) of this proclamation exclusively to the value of the non-U.S. content of the automobile. The non-U.S. content of the automobile shall be calculated by subtracting the value of the U.S. content in an automobile from the total value of the automobile.
(3) If U.S. Customs and Border Protection (CBP) determines that the declared value of non-U.S. content of an automobile, as described in clause (2) of this proclamation, is inaccurate due to an overstatement of U.S. content, the 25 percent tariff shall apply to the full value of the automobile, regardless of the actual U.S. content of the automobile. In addition, the 25 percent tariff shall be applied retroactively (from April 3, 2025, to the date of the inaccurate overstatement) and prospectively (from the date of the inaccurate overstatement to the date the importer corrects the overstatement, as verified by CBP) to the full value of all automobiles of the same model imported by the same importer. This clause does not apply to or otherwise affect any other applicable fees or penalties. [SOURCE]
It cannot be overstated how big a hit this will be to the German economy specifically. That’s why EU President Ursula von der Leyen is couching her words very carefully.
Germany drives the economic engine of the EU, and the Germans care about their money far more than they care about the security of Ukraine.
“As I have said before, tariffs are taxes – bad for businesses, worse for consumers equally in the US and the European Union,” European Commission President Ursula von der Leyen said in a statement. “We will now assess this announcement, together with other measures the US is envisaging in the next days.”
The next biggest impact will come to Canada. The auto-sector in Canada only exists to send cars and trucks into the U.S. market. That’s the entire purpose and business model behind the Canadian auto industry. Every component part of a Canadian car that does not originate from USA will now be subject to a 25% tariff.