Impact of Tariffs on the U.S. Automotive Industry: U.S. vs Foreign Brands

Growing disputes over international trade escalated considerably after the newly elected U.S. government, led by President Trump, placed tariffs on numerous imports, including automobiles, auto ancillaries, and other raw materials (metals, nonmetals).

After imposing the tariffs, prices of the vehicles are expected to increase drastically from 1^st April 2025, thereby the OEMs are under the shadow of losing out of their business with lower demand due to overall instability in the economic activities and inflation in the country.

The important pointers of the current tariff policy are given below:

• Completely Build-Up (CBU) vehicle tariffs would be up to 25% and are likely to be applied over the wholesale value of a vehicle.


• Vehicles which would be exempted: If vehicles fall under the United States-Mexico-Canada Agreement (USMCA) which refers to at least 75% of the vehicle’s components being produced in North America, then the vehicle would be USMCA-compliant. The percentage of the vehicle that doesn’t come from North America, will be tariffed at 25%. 


• Auto parts tariffs of 25% are set to start by May 3^rd. In the next 90 days, the U.S. Department of Commerce is expected to establish additional tariffs for auto components, which were not covered in the May 3^rd tariffs list.


• Essential raw materials for the auto industry such as steel and aluminum imports are subject to 25% tariffs.

How Market Revised After Volatility Caused in the U.S Auto Sales after the COVID-19 disruptions

In the year 2024, the U.S. auto industry achieved sales with approximate growth of 2.3% year-over-year (y/y), indicating a marginal recovery in demand, after facing several rough patches in the past five years.

Sales of New Vehicles YoY

The volatility in the market has been severely impacted after the COVID-19, in the year 2020, the market fell down by 14.6%. Volatility followed in the next two years: in the year 2022, the market witnessed negative growth and witnessed pre-COVID-19 sales and steady growth in the last couple of years under the Biden government.

Given the newly imposed tariffs by the Trump administration, the growth would be drastic in the present year. With a clear mission of 'Making America Great Again,' the present administration has pushed automakers and policymakers to bring manufacturing activity back to the U.S. Let's look at why the Trump administration believed in implementing trade obstacles.

What are Current Imports of Automobiles to U.S.?

In the year 2024, U.S. imported USD 217 billion worth of cars, from countries such as Mexico, Canada, Japan, South Korea, and Europe among others. The U.S. has imported USD 49.7 billion and USD 28.3 billion of cars from neighboring countries Mexico and Canada respectively. Followed by North America, the U.S. imports majority of cars from Europe, wherein imports from Germany is worth USD 25.59 billion, U.K. is worth USD 9.81 billion, Slovakia is worth of USD 6.30 billion, Italy is worth USD 3.98 billion, and Sweden is worth USD 3.97 billion, with a combine share of 22-23% of total imports. This has established a long term alliance among the western economies for decades.

On the other hand, U.S car imports from Asian countries such as Japan are worth USD 40.76 billion and Korea is worth USD 38.02 billion. Surprisingly, China’s marginal imports are worth USD 3.82 billion, approx. 1.7% share in the total U.S. car imports. The U.S. has the highest trade deficit in the current trade practices.

Growth in the U.S. Car Imports Value Post-COVID-19

The above table signifies the decision of the announcement of tariff as vehicle imports have kept on increasing over the last five years, the U.S. government was compelled to take corrective action in order to maintain trade balance among partnering countries while safeguarding the U.S. manufacturing industry from European and Asian counterparts.

How Will The Tariffs Impact The Overall U.S. Car OEMs Vs Foreign Brands?

Most of the U.S. brands, like Ford, GM, and Tesla are having their assembly and manufacturing units in different parts of U.S. The U.S. car market is highly dominated by the major OEMs, for instance JLR, Volvo, Mazda, and VW imports roughly above 80% of their vehicles and they are expected to face massive impact. The moderate impact will be seen on the brands such as GM, Stellantis, Toyota, and BMW as their imports are roughly between 40 to 50%. The least impacted brands would be Tesla, Honda, and Ford as their imports are comparatively lesser than other players. These least impacted players would be in the competitive position in the near future to compete with JLR, Volvo, VW, Hyundai, Mercedes Benz, and others.

Below is the data about the car brands sold in U.S. and percentage of their imports.

How Tariffs are Affecting Auto OEMs: Having Manufacturing/Assembly Facilities In the U.S. Vs Imported To the U.S

The most popular cars sold in the U.S. (both made, manufactured or assembled in the U.S.) hold the highest share of 53%, and the remaining share is held by manufacturers in Mexico, South Korea, Japan, Canada, Germany, and Rest of the World. However, it is important to understand that the impact is not only limited to the imported cars, but is likely to affect the 53% of the cars made in the U.S. as well.

Global automotive industry heavily relies on a complex supply chain; all major OEMs are dependent on the component suppliers. As OEMs operating in the U.S., focusing on the assembly and manufacturing vehicles have limited their operations including development of automotive chassis, and other small assemblies.  Apart from this, almost all the components are being outsourced to multiple global vendors. Thus, various trade agreements and relationships between countries impact on the selection of vendors for auto OEMs, strategic sourcing, meeting quality standards, delivery schedules, and import conditions. Thus, these factors will change after the tariffs and industry will be pushed to realign their trade practices.  

The popular car in the U.S. is Ford’s F-Series pickup truck, which has remained the best-selling model in the year 2024 with 0.73 million units sold. The vehicle is a perfect representation of U.S.’s automotive enthusiasm and is considered to be the most famous American truck and proudly marked as 'made in the USA', despite the fact that it is not entirely manufactured with U.S.-sourced parts, thousands of such parts are imported into the U.S. from across 24 nations for the F Series pick-up trucks. This demonstrates the reliance of the global supply chain on the U.S. automotive market. The impact of tariffs is likely to increase the price of all similar models/vehicles for the OEMs having assembly and manufacturing facilities in the U.S., including Ford, GM, Stellates, Tesla, and among others.

Even if the component manufacturing OEMs decided to move in the U.S., still the industry is under the concern of deliberately increasing the cost of raw materials like steel and aluminum as tariffs on these materials will still exist. In this, U.S. auto industry is one of the largest consumers of metals and non-metals, is likely to get impacted for managing their operations for building chassis, casings made out of metals through sheet metals processing, ABS-plastics auto interiors/parts, and other elements used in the manufacturing process.

Ultimately, U.S. consumers are likely to suffer from the new policy. The overall economic impact due to the increase in the car prices, may affect the lowering overall car demand, and limiting production volumes of cars in a longer period of time. Further it is expected to affect overall employability of the U.S. auto industry in coming days. As a result, OEMs will be left with no choice but to adopt more automation in the process to hedge the incremental production cost. This is ultimately a setback to the idea of keeping the auto production back to mainland U.S. for creating new job opportunities and supporting the country’s economic growth. 

How Auto Industry is Negotiating with U.S. Government on Tariffs

The U.S. automakers are in the fear of a backfire of tariff duty on the overall industry performance as they believe, shifting the manufacturing of imported components to the U.S. is a long process that may take many years to do so and they may be end up losing business competitiveness. Furthermore, aggressive dumping of cars from foreign brands is making it harder for companies operating in the U.S. to compete against automakers, backed by federal subsidies for exporting these vehicles and components at a significantly lower price to erase the tariff impact.

American Automotive Policy Council president, Mr. Matt Blunt has shared his statement on the announcement of automotive tariffs, saying that American OEMs are committed to produce vehicles in the country, increasing the investment and jobs. Further adding to the concern, it is critical that tariffs are implemented a way which avoid raising of prices for U.S. consumers and preserves the competitiveness of the integrated North American automotive sector as critical part of the USMCA agreement to increase a border free trade among the U.S., Mexico, and Canada. As Canada and Mexico exported worth of USD 76 billion cars and USD 102 billion auto parts respectively in the past year.

The top six associations of the U.S. automotive industry, including- car dealers, suppliers, and nearly all major OEMs join to lobby the Trump government, to get relief from new the policy. The letter expresses their concerns about all possible layoffs, production stoppage, and bankruptcy of auto dealers due to limited capital. The letter was signed by the leading associates; Alliance for Automotive Innovation, Autos Drive America, Vehicle Suppliers Association MEMA, American International Automobile Dealers Association, National Automobile Dealers Association, and American Automotive Policy Council. The overall industry looks after more than 10 million jobs, and is responsible for USD 1.2 trillion worth of business every year.

How Things will Move in the Coming Months?

After witnessing steady growth in the last couple of years, the U.S. auto industry requires sustainability as well as stability, as the declaration of tariffs created a panic in the industry. The government halted the implementation for a few weeks after the announcement, and eventually announced a temporary exemption of the Mexico-Canada tariff, giving no direct signals to the OEMs and stakeholders. This is hampering the expansion of the auto sector due to lack of clarity on the future policy. 

Uncertainty over whether and how long these tariffs will remain in place is causing the industry to suffer transactional losses during transportation, logistics, and energy. A much clearer picture is expected by the government over trade policies, shift in the tariffs imposed on automotive parts, and vehicles imported under USMCA-compliant and later from other markets like Europe and Asia.