Reciprocal tariffs in focus: New adjustments to US trade

Highlights 

• Trump series of reciprocal tariffs start Aug. 7.
• Copper tariff of 50% imposed Aug. 1.
• Trade outlines agreed with EU, Japan and South Korea – key auto import countries.
• S&P Global Mobility tariff-related forecast assumptions largely unchanged.

As the delayed Aug. 1 deadline for reciprocal tariffs approached, there was a flurry of negotiations in late July. But despite several announcements of new trade agreements, S&P Global Mobility’s assumptions are largely unchanged regarding the impact of tariffs on the auto industry.  

The recent activity will, however, result in updates to the September 2025 sales and production forecasts, to adjust for new timing indications.

Canada and Mexico: Closest trading partners do not have an agreement yet

On July 31, US President Donald Trump issued new executive orders regarding the fentanyl-related tariff on Canada as well as the reciprocal-trade-related tariffs on other countries, including Mexico. Changes are effective Aug 7, 2025.

The US gave Mexico a 90-day extension for negotiation relative to reciprocal tariffs. During the delay, Mexico will continue to pay a 25% fentanyl tariff on most goods, a 25% tariff on vehicles, and a 50% tariff on steel, aluminum and copper, though these tariffs do not stack on top of each other. Essentially, the highest tariff amount applicable to an import from Mexico is the one which applies. Exemptions for USMCA-compliant parts and the value of US-sourced components continues.  

The US President says Canada has not done enough to stem fentanyl and other illicit drugs flowing into the US, as well as noting that Canada retaliated against the earlier US tariff actions. The executive order increased Canada’s fentanyl-related tariff from 25% to 35%.

The US noted that goods “transshipped” to evade the 35% will be subject to a transshipment tariff of 40%. However, USMCA-compliant goods are exempt from the 35% tariff.  

Though Canada did not respond with retaliation, the Canadian prime minister reportedly said that a deal is still weeks away.

Reciprocal tariffs around the world

While the US was successful in reaching frameworks for trade deals with the United Kingdom, the European Union, Japan, South Korea, Vietnam, the Philippines, and Indonesia, it has been unsuccessful with most countries. There is no change to the rates for goods from mainland China imposed as of May 12, 2025.  

The US published a list of countries which will be subject to ad valorem duties until the reach of a new agreement or the conclusion of negotiations that have already started. Most countries on this list are not critical to the auto industry. For countries not specifically listed, the US will impose an additional ad valorem rate of 10%, also beginning Aug 7.

As with the Canada changes, the updated reciprocal tariff order applies a 40% tariff on goods determined by the CBP to have been transshipped, in lieu of the additional ad valorem duty. The Commerce Department and Homeland Security Department will work with the CBP to publish a list every six months of countries and specific facilities used in circumvention schemes. 

The US agreement with South Korea was confirmed by presidents of both countries via social media platforms. The initial written draft is not complete and a date for the new structure to start is still uncertain. The same is true for the EU and Japan agreements, though the White House has issued fact sheets outlining the details.  

Formal language and final agreements are some time away, and all are expected to require approvals at a government level. Details on the process vary by country or region.

All three agreements set an import tariff of 15% for most goods shipped to the US, and zero tariff for most or all US exports to those countries, including autos and auto parts. There are some nuances between the three agreements. The 15% is a significant reduction from the Section 232 25%, yet still much higher than the 2.5% the EU and Japan imports were previously subject to, and the zero percent South Korean autos were previously imported under. The Section 232 tariffs on steel, aluminum and copper remain for now.

All three agreements see commitments for creating investment funds, with the condition that most profits benefit the US and with key US manufacturing industries to benefit. All three agreements see each country or region purchasing large sums of energy products from the US.

The investments will be directed to support US energy infrastructure and production; semiconductor manufacturing and research; critical minerals mining, processing and refining; pharmaceutical and medical production; and commercial and defense shipbuilding.  

Though the automotive industry is not listed, the US auto industry should also benefit, as these investments could help build up a US-based supply chain for key components used in the auto industry.

As of July 31, unless a country or region has reached a framework agreement, treatment of autos and auto parts imports remains at 25% under the Section 232 tariffs. There appears to be no change to the US decision that the Section 232 auto-related tariffs do not stack on top of the reciprocal tariff. However, where the most-favored nation tariff of 2.5% has been historically applied, understanding is that it continues. This means that countries still subject to Section 232 tariffs have an auto tariff of 27.5%.  

For Mexico, the status quo continues for another 90 days. For the US, it buys some time without making the trade relations between those two countries worse. For Canada, the trade tension has increased.

With key US light-vehicle exporters the UK, EU, Japan and South Korea at 10% (UK) or 15% (the others) tariff rates, the updated reciprocal tariffs have a lesser impact on the auto industry. Other countries named have low or non-existent vehicle exports to the US.  

For example, imports from Thailand accounted for only 0.2% of US light-vehicle sales. In 2024, imports from the European Union accounted for just under 5% of US light-vehicle sales; South Korea accounted for 8.7%, and Japan for 8.3%. 

The ongoing discord between the US and Canada and Mexico continues to be a concern for the auto industry and the region’s economics. US exceptions for imports that are USMCA-compliant continues and has blunted some impact.  

In 2024, Canadian manufacturing supplied 6.8% of US light-vehicle sales, while Mexico provided 15.3%. The updates to Trump’s reciprocal tariffs will have impact on S&P Global Market Intelligence macroeconomic and GDP forecasts, which is among the elements driving total industry volume (TIV). The reciprocal tariffs will indirectly affect sales and production forecasts. 

Relative to specific forecasts for global light-vehicle sales and production, the reciprocal tariffs have less impact than the Section 232 autos, auto parts and metals tariffs. However, over the past several months, conditions have eased such that the S&P Global Mobility light vehicle sales forecasts have improved since the significant change made to the April 2025 forecast round.

The outlook for 2025 and 2026 is still far below what was expected with the January 2025 forecast, and sales in 2026 will take the brunt of the impact.