Auto Tariffs Update: Some Relief, More Complexity for Automakers

Reflecting the complexity and difficulty in interpreting these orders, we are seeing multiple, sometimes contradictory, conclusions reported since the release of the orders.  

Some confusion is rooted in the communication from the White House directly. We have seen reports, for example, that the calculated vehicle value would be based on average transaction price. We have also seen statements that only vehicles with at least 85% US content would be eligible for the relief. Based on the White House documents published on April 29, neither of these reported assertions are true. 

Our read of the signed executive documents conclude that the tariffs relief is available based only on vehicles assembled in the US from April 3, 2025, through April 30, 2027, in two stages. Automakers can request an “import adjustment” to offset import duties on parts used in US vehicle final assembly. Because, as of May 1, parts compliant with the terms of the USMCA have a zero tariff, these parts will not appear in the calculations for determining the offset an automaker will request. 

An automaker can use the offset directly or apply it to assigned importers; the process of requesting offsets will include detailing what part is being used for what vehicle and can include assigning direct importers (for example, suppliers bringing in a part for just-in-time vehicle assembly) to receive the value of the offset. Suppliers are not eligible to apply directly for an offset. Of course, the automaker can use the offset for parts it imports from a supplier as well.

For vehicles with final assembly in the US from April 3, 2025, to April 30, 2026, an automaker “may apply for an import adjustment offset amount equal to 3.75% of the aggregate Manufacturer’s Suggested Retail Price (MSRP) value of all automobiles assembled in the US.” This quote is taken from the April 29, 2025, proclamation. 

For the period of May 1, 2026, through April 30, 2027, automakers may apply for an import adjustment offset amount equal to 2.5% of the aggregate MSRP value of all automobiles assembled in the US during that period. The process of applying for the offset will include projecting how many vehicles they expect to produce in the period, where those will be produced, and how much the automaker expects it will have to pay in parts tariffs.

According to the White House, “The [3.75% rate] reflects the total duty that would be owed when a 25 percent duty is applied to parts accounting for 15 percent of an automobile’s MSRP value.  The [2.5%] rate . . . reflects the total duty that would be owed when a 25 percent duty is applied to parts accounting for 10 percent of an automobile’s MSRP value.” The White House Fact Sheet associated with the April 29 proclamation says, “These percentages reflect the duty that would be owed when a 25% duty is applied to 15% of the value of a U.S.-assembled automobile in the first year, and to 10% of the value of a U.S.-assembled automobile in the second year.”

These statements seem to have been designed to more easily explain how the administration concluded that 3.75% in 2025 and 2.5% in 2026 will achieve its objectives of increasing US manufacturing of both vehicles and parts. The White House says that the OEM offset of 3.75% is what would make an OEM tariff-free if the vehicle they built in the US had an 85% US content level in 2025 and a 90% US parts content level in 2026. 

Very few vehicles are at 85% US content levels today, so this structure can reduce the effective amount that automakers will pay as a tariff on imported parts. How much less will depend on how much they rely on imported components. The order does not say that a vehicle must have 85% US content to be eligible for an offset for the remaining tariffed parts.

The offset enables automakers to recover some tariff cost, but it does not take the 25% auto parts tariff away. The offset structure also is only applicable to parts going into a new vehicle produced at a US plant. The proclamation does not include an option for requesting an offset for auto parts destined for aftermarket, repair, warranty fixes, or maintenance.