US Imposes 25% Import Tax on Car Parts, Sparking Industry Uncertainty
A 25% import tax on engines, transmissions, and other key car parts has come into force in the US, adding to the pressure on an industry already navigating a complex web of policy changes. The new tariff, which was announced by President Donald Trump, is intended to encourage carmakers to increase their manufacturing presence in the US.
According to a report by the BBC, the tariff comes days after Trump eased the measure in response to concerns from businesses, but did not eliminate it. The US president has said that the new tariff, along with a 25% import tax on cars that went into effect last month, is designed to push carmakers to do more manufacturing in the US.
However, analysts have warned that any immediate expansions in the US are likely to come at the expense of production elsewhere, while also leading to higher costs for businesses and ultimately higher prices for customers. As the BBC reports, General Motors and Ford have this week reported double-digit sales growth continuing in April, but GM also warned that it expected as much as $5bn (£3.7bn) in new costs this year as a result of the tariffs.
The tariffs have already had a significant impact on the industry, with nearly half of vehicles sold in the US last year imported from outside the country. When Trump announced plans in March to hit cars and certain car parts with 25% tariffs, it sent shockwaves through the industry, drawing warnings of higher prices and risks to production and sales. As the BBC notes, the president has since softened his policies, especially regarding Mexico and Canada – key parts of the industry’s supply chain, due to decades of free trade between the three countries.
The BBC reports that parts made in Mexico and Canada in compliance with that free trade agreement will be spared the duties. Officials had initially described that exemption as temporary, but after customs instructions issued this week, analysts said it now appeared likely to stick. Trump this week also signed measures to shield firms from facing multiple tariffs on the same item, while setting up a two-year system carmakers can use to reduce the duties they have to pay on parts imported from other countries and used in US-assembled cars.
Stephanie Brinley, principal automotive analyst at S&P Global Mobility, told the BBC that "the changes that have come in the last couple of days are going to make it easier … but even so it’s still a dramatic change to the market. It’s still a big tariff." Executives at some firms have said they are exploring ways to increase production in the US to mitigate the new costs. General Motors said it had expanded truck production at its factory in Fort Wayne, Indiana, by about 50,000 as a result of the tariffs.
The BBC also reports that Mercedes has said it has flexibility to expand at its factory in Alabama. However, Art Wheaton, director of Labor Studies at Cornell University, said that the US might not see new factories getting built anytime soon, given the significance of that investment and how fast the situation is changing. "If I’m going to make a multi-billion dollar decision… I wouldn’t do it in a market that is this unstable," he said.
The administration has said it is working on trade deals with key countries for the industry, including South Korea and Japan. Trump might also modify his policies if signs of economic damage start to emerge. As Wheaton noted, "everything is pretty good now… I don’t think the full impact of those tariffs has hit yet." The BBC has provided comprehensive coverage of the impact of the tariffs on the US automotive industry.
The development has left many in the industry uncertain about the future. In related news, some automakers have been said to adjust production and business strategies. For instance, Stellantis, maker of Jeep, Fiat and Chrysler, withdrew financial guidance for the year ahead, citing the fluidity of the situation. BBC has more on this story.
