Tariff negotiations ongoing as new US budget bill takes hold

Highlights 

• Trump delayed reciprocal tariffs to Aug. 1
• Copper tariff to be imposed, probably 25%
• Brazil, Canada, Japan and South Korea among countries getting new tariff letters

Despite recent headlines, the automotive industry remains in a holding pattern regarding tariffs, with no significant changes resulting from the ongoing tariff negotiations.

Just ahead of a July 9 deadline for reciprocal tariffs to be implemented, US President Donald Trump extended the pause to Aug. 1, with a twist. Trump notified several countries of what a potentially revised reciprocal tariff will be if a deal is not reached by Aug. 1, an effort to increase pressure for negotiations.  

Among the first examples were Japan, with a threatened tariff rate increase from 24% to 25%. South Korea was told it would have a tariff rate of 25%, unchanged from the rate announced on April 3. Trump has also warned that Brazil will see an increase from 10% to 50% and that Canada may see a reciprocal tariff as high as 35%. The main effect of these statements was to leave the pause in place while placing further pressure on tariff negotiations.

The reciprocal tariffs do not stack on top of other Section 232 tariffs, as announced in May 2025. It remains true that wherever the reciprocal tariffs land, they will have little direct impact on light-vehicle or parts classified as auto part imports. The reciprocal rates impact the macro environment and affect the total industry volume (TIV).  

Not all components in a vehicle are on the auto parts list; for companies importing those parts for US production, the reciprocal tariff rate would apply instead of the Section 232 25% rate.

Tariff negotiations continue, but steel and aluminum tariffs remain in place and have been increased. Trump also announced plans for a Section 232 tariff on copper to take affect before or on Aug 1. Tariffs on semiconductor chips are expected and tariffs related to the medium- and heavy-duty sector are possible but amounts and timing remain uncertain. The copper tariff will add more on-cost to electric vehicles due to being more copper-intensive than internal combustion engine vehicles.  

Amid continued tariffs uncertainty, the Trump Administration’s key domestic policy act, the One Big Beautiful Bill Act (OBBA) was signed into law on July 4, 2025. There are few elements which directly impact the auto industry; some were integrated into S&P Global Mobility’s June forecast; others will come into focus with future forecast rounds.  

The Administration was expected to end tax-credit incentives for EV purchases and leases, both for light-duty and medium- and heavy-duty electric vehicles. This was accomplished in the OBBA and these end on Sept. 30, 2025.  

The OBBA reduced automaker civil penalties for corporate average fuel economy (CAFE) to US$0. CAFE penalties are assessed under the National Highway Transportation Safety Administration (NHTSA), in a complex process which determines compliance several model years after the fact.  

While this may seem like a relief for automakers, the CAFE regulations themselves have not yet changed. Reducing the penalty does not fully relieve automakers from the need to work toward meeting regulations. Automakers who had been selling credits to help other automakers reach compliance and avoid fines are now less likely to be able to sell those credits. In 2024, Tesla reported about US$2.7 billion in revenue from those credits.  

The House had proposed the ability for consumers to deduct auto loan interest payments from their taxes for the next several years during the reconciliation phase, and this element was kept for the final bill.  It applies only to US-assembled vehicles, through the 2025 to 2029 tax years, and has income limits. 

While there have been statements, executive orders, and ongoing tariff negotiations from the US and other countries, the lack of clarity in the tariff situation has resulted in the auto industry mostly taking a wait-and-see approach.  

The pause on reciprocal tariffs for the purpose of extending negotiations means that the industry does not know what to expect for auto and general tariffs. The industry also lacks clarity around emissions and fuel economy requirements, despite penalties being cut in the OBBA.  

We continue to see automakers adjust plans relative to electric vehicle capacity and product programs, though those decisions so far have been more reactive to consumer demand than to tariffs.

On US and North American production, it’s largely been business as usual throughout the situation. Some automakers have made comparatively easy sourcing change announcements, but they will not come into play until late 2026 or 2027. Others have largely adopted a ‘wait-and-see’ approach relative to adjusting North American production as an immediate reaction. 

OEMs appear to be largely in a holding pattern in the hope of tariff relief from pending negotiations on pricing as well. Price increases confirmed to date have focused on routine model-year pricing updates and content driving the change, for most automakers.