Auto tariffs have always been a top priority in US President Trump's trade and tariff policies. On April 9, the Trump administration announced that it would suspend the implementation of "reciprocal tariffs" for some countries and regions for 90 days, but auto tariffs were not included in the suspension. Since the full implementation of US auto tariffs, the global auto industry has been shaken. First, a 25% tariff was imposed on imported cars on April 3, and then a 25% tariff was imposed on key imported parts on May 3. Prior to this, the United States imposed a 2.5% tariff on imported passenger cars as a whole (except for some countries and regions) and a 25% tariff on trucks. After the 25% tariff was imposed, the import tax rates for passenger cars and trucks soared to 27.5% and 50%, respectively.

At present, the Trump administration is using the threat of tariffs as a bargaining chip to start intensive negotiations, hoping that allies and major trading partners will make concessions in exchange for the exemption and downgrade of US tariffs. It is worth noting that automobiles have always been an important topic for the United States to negotiate with other countries and regions. For example, Japan and the United States have held multiple rounds of negotiations, but the two sides have not yet reached an agreement due to the inability to reach an agreement on automobile tariffs. So far, only three countries have made positive progress with the United States on the issue of automobile tariffs. In other words, cars exported to the United States from these three countries will not be subject to a 25% tariff. They are the United Kingdom, Canada and Mexico.

01

The UK and the US reached a trade agreement first, and the tariff on cars exported to the US was reduced to 10%

On May 8, the UK and the US took the lead in reaching a trade agreement, which was also the first trade agreement signed by the United States since US President Trump announced the implementation of large-scale global tariffs. According to reports, in order to allow the United States to reduce tariffs on imported cars from the UK, the British government agreed to make concessions on policies related to importing American food and agricultural products. However, the US still retained a 10% base tariff.

According to a statement released by the British government on May 8, the tariff on British car exports to the United States will be reduced from 27.5% to 10%, and less than 2% in 2023; steel and aluminum tariffs will be reduced from 25% to zero. This tariff preference applies to 100,000 cars exported from the UK to the United States, and the part exceeding 100,000 will be restored to 25%. However, 100,000 vehicles are almost equivalent to the total amount of British car exports to the United States in 2024. According to the British Society of Motor Manufacturers and Traders (SMMT), the UK exported about 102,000 cars to the United States in 2024. The United States is the second largest importer of British-made cars, second only to the European Union, accounting for nearly 20%.

This has greatly relieved the British automaker Jaguar Land Rover, because the main company exporting cars from the UK to the US is Jaguar Land Rover. Most of the 100,000 cars exported from the UK to the US come from Jaguar Land Rover. Currently, Jaguar Land Rover has no factories in the United States. Most of the cars exported to the United States come from British factories, and some come from Slovak factories. According to the financial report data for the 2025 fiscal year (April 1, 2024 to March 31, 2025) recently released by Jaguar Land Rover, Jaguar Land Rover's global sales in that fiscal year were around 400,000 vehicles, of which nearly a quarter were sold in North America.

Although the UK and the US have reached a trade agreement that allows up to 100,000 cars to enter the US market each year at a 10% tariff, the tariff rate is still higher than the 2.5% base rate before the US auto tariff was implemented. This means that even Jaguar Land Rover models exported from the UK to the US will face tariffs that are three times higher than before. What's more, Jaguar Land Rover's models produced in its Slovakian factory and exported to the United States will still be subject to a 25% auto tariff. Therefore, many analysis agencies predict that Jaguar Land Rover's sales in the North American market may decline in fiscal 2026.

In addition to Jaguar Land Rover, other automakers that produce cars in the UK and export them to the United States may also be affected, including Bentley, Rolls-Royce, Aston Martin, etc. However, these super luxury and luxury brands themselves have relatively small sales volumes, with annual sales of about 1,000 vehicles each in the US market. At present, it is unclear how the quota of 100,000 cars exported to the United States at the base rate will be allocated to these automakers.

02

In accordance with the provisions of the USMCA, the tariff on complete vehicles has been reduced from 25% to 15%

On May 20, local time, Mexican Economy Minister Ebrard said that according to the measures announced by the Office of the United States Trade Representative on the same day, cars assembled in Mexico and exported to the United States will be subject to an average tariff rate of 15%, rather than a base rate of 25%. "The final tariff rate will depend on the vehicle manufacturers and their specific models under the framework of the US-Mexico-Canada Agreement," Ebrard said. "This is the result of weekly talks between Mexican and American officials."

According to the official communique issued by the U.S. Department of Commerce on May 20, the above-mentioned automobile tariff preferences only apply to Mexico and Canada, and imported vehicles must comply with the requirements of the US-Mexico-Canada Agreement on the rules of origin, otherwise they will still face a 25% tariff. "This provides preferential treatment for the automotive industries of Mexico and Canada relative to the automotive industries of other countries in the world," Ebrard said.

Data shows that of the approximately 16 million new cars sold in the United States in 2024, only half are manufactured in the United States, and the other 50% are imported. Among the cars imported into the United States, about half come from Mexico and Canada, and the other half come from Japan, South Korea, Germany and other countries.

This has made the big stone hanging in the hearts of many multinational automakers, including General Motors and Ford, fall a little. Due to its proximity to the United States, Mexico's auto industry has always been export-oriented, with automobile production more than three times its sales. Many multinational automakers have built factories in Mexico, and their products are mainly exported to the US market, and can also radiate to the Central American and South American markets. Data show that Mexico's automobile production hit a record high of 3.989 million vehicles in 2024, a year-on-year increase of 5.6%. Among them, the number of exports reached 3.479 million, accounting for as high as 89.2%; and the number of vehicles exported to the United States reached 2.771 million, accounting for 79.7% of the total exports. According to S&P Global Automotive data, Canada manufactured a total of 1.3 million vehicles in 2024, of which 86% were exported to the United States.

The reason why the United States lowered its auto tariffs on Canada and Mexico is that the negotiations with the two countries are still in full swing. The most important reason is that the North American auto industry chain is highly integrated. The United States will be hurt by imposing auto tariffs on Canada and Mexico. In recent times, American automakers and industry organizations have said that imposing tariffs on automobiles and parts that comply with the USMCA will hit the US auto industry hard and will destroy the North American integrated supply chain that has existed for more than 25 years. As early as March 4, the Trump administration's new 25% tariff on Mexican and Canadian products came into effect. However, after talks with executives of General Motors, Ford and Stellantis, Trump decided on March 5 local time to give automakers that meet the provisions of the USMCA a one-month tariff buffer period, provided that they meet the relevant provisions of the existing USMCA. Since then, also at the strong request of American automakers, the United States has continued to exempt auto parts from Canada and Mexico from tax. On May 3rd local time, the United States imposed a 25% tariff on imported key auto parts, but according to an announcement issued by the U.S. Customs and Border Protection (CBP), auto parts that meet the origin rules of the USMCA continue to be subject to zero tariffs, except for auto parts and component combinations.

However, the U.S. auto industry is still generally dissatisfied with the reduction of Canada and Mexico's auto tariffs to 15%, believing that the U.S. auto tariffs on Canada and Mexico should at least be reduced to the same level as the United Kingdom. The U.S. Automotive Policy Council recently stated that the Trump administration should reconsider its practice of placing the United Kingdom above its North American partners.

03

Auto tariffs remain a sticking point in multi-country tariff negotiations

At present, the United States is negotiating tariffs with many countries and regions. Data shows that in terms of amount, the largest imports from Mexico in 2024 will be automobiles and parts from Mexico, followed by the European Union, Canada, Japan, South Korea, etc. The negotiations between the United States and countries and regions such as the European Union, Japan, and South Korea have also attracted much attention from the automotive industry.

It is worth noting that the positions of many traditional allies of the United States, including Japan, South Korea, and the European Union, have recently turned tough on the United States, and they have expressed that they are not in a hurry to reach an agreement. The reason why the United States has difficulty reaching an agreement with the above-mentioned countries and regions is that automobile tariffs are a big mountain in front of it.

Taking the European Union as an example, Trump said on May 23 that the US-EU negotiations "have made no progress" and threatened to impose a 50% tariff directly on the European Union from June 1. However, just two days later, after Trump spoke with European Commission President von der Leyen, he agreed to restore the deadline for imposing a 50% tariff on the European Union to July 9. This extension shows that both sides still hope to retain room for negotiation to avoid escalating trade tensions.

On May 23, local time, Japan and the United States held the third round of tariff negotiations in Washington, the United States. During the meeting, Japanese Minister of Economic Revitalization Ryo Akasawa, as the representative of the Japanese side, once again asked the US to review a series of tariff measures, including a 25% tariff on automobiles and major parts. Earlier, Japanese Prime Minister Shigeru Ishiba made a strong statement in an interview with Japanese media: "Although the two sides (Japan and the United States) have conducted in-depth consultations and made considerable progress, we absolutely cannot accept tariffs on automobiles."

South Korea and the United States also launched the second round of tariff negotiations in Washington on May 20. According to reports, there are obvious differences in the positions of South Korea and the United States on the issue of tariff reduction and exemption, and the prospects for negotiations are not optimistic. South Korea is particularly concerned about the 25% high tariffs currently imposed by the United States on steel, aluminum and some automobile products imported from South Korea. It is reported that South Korea's original goal was to formulate a package plan on tariffs and economic cooperation before July 8, but South Korea's Minister of Trade and Industry recently said that the time for reaching an agreement may be delayed due to the South Korean election.

India is seen as one of the countries with the greatest hope of reaching a trade agreement with the United States. On May 27, Hassett, an economic adviser to the White House, said that the United States and India are close to reaching a trade agreement, and the goal of both sides is to sign the first round of agreements before the fall of 2025.

It is worth noting that on May 28, local time, the United States International Trade Court in New York ruled to suspend the "reciprocal tariff" measures announced by the Trump administration on April 2, and the Trump administration immediately filed an appeal. This is the first major legal challenge to Trump's tariff policy. It is unknown what impact it will have on tariff negotiations between the United States and other countries. However, the lawsuit and ruling target "reciprocal tariffs" rather than taxes on specific industries, such as automobile tariffs. Currently, the 25% tariff imposed by the United States on imported vehicles and parts is not affected.

However, another dramatic scene followed. On May 29, local time, the U.S. Court of Appeals suspended the above ruling and stated that the Trump administration's tariff measures would be restored during the appeal period, and the "reciprocal tariffs" would temporarily continue to be effective.

Source:China Automotive News

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