Rapid Impact Analysis - 20 February 2025
Trump Tariffs Could Hit Automakers Hard. What's Next?
Article Summary
New executive orders—including the Trump tariffs announcement of 25% on Canada and Mexico and 10% on China—have continued at a regular pace over the last month.
Highlights
- Trump announced tariffs on steel and aluminum, effective March 12, 2025, with no exemptions.
- Trump ordered a review of all US trade agreements to determine the need for ‘reciprocal’ treatment.
- Reciprocal tariffs could be imposed in early April.
- Trump has floated 25% tariff on all automotive imports.
- Mexico and Canada import tariff of 25% from Feb 1 still on hold.
President Trump began his term with a massive number of executive orders and proclamations, including the most recent proclamation regarding steel and aluminum tariffs. The executive orders—including the Trump tariffs announcement of 25% on Canada and Mexico and 10% on China—have continued at a regular pace over the last month, maintaining pressure on global trade and the automotive industry.
The 25% tariffs on steel and aluminum are due to take effect on March 12, 2025, with no exemptions for countries or sectors. These are an extension and increase of tariffs which President Trump imposed during his first term and which had been rescinded under President Biden.
Last week, the President also ordered a review of US trade relationships, looking for where there are not ‘reciprocal’ arrangements and promising to make them so.
Trump has indicated there will be further tariffs on cars, semiconductors, and pharmaceuticals. These could be “over and above” potential reciprocal tariffs.
S&P Global Mobility expects that:
- Tariffs could slow global economic growth and damage supply chain relationships between the US and other countries.
- Other countries or regions could respond with retaliatory tariffs, targeted purchase programs or other policy alignments.
- Manufacturers in all industries will be impacted by higher procurement costs for intermediate goods, while tariffs on imported assembled goods will drive inflation.
- Previously established strategies for pricing, supplier negotiations, inventory management and reshoring will be rolled out.
Although it is not yet certain what tariffs will be enacted, and in what amounts, S&P Global Mobility has developed an early analysis of possible outcomes. Light-vehicle sales forecasts and light-vehicle production forecasts are under review, and we see three likely scenarios related to tariffs and US actions.
Universal Tariffs
The assumption that the US will enact what we have called a universal tariff is built into our current macroeconomic assumptions and therefore reflected in the latest production and sales forecasts (February 2025).
Here, we presume a tariff rate of 10% set as a standard/universal/common import tariff on all countries, other than those in the USMCA (unless there is already tariff rate set higher as a special case trade action, as exemplified by the steel and aluminum tariff). We expect this 10% tariff will apply to most imported manufactured goods, not just automotive.
Sectoral exceptions are possible, though not expected for completely-built-units (CBU) auto imports. Assumed prior to the latest Trump activity, we still see introduction as early as second quarter 2025 with some possible phase in for some sectors. Though retaliatory tariffs from other countries are likely, we see autos retaliation to be limited.
The macroeconomic impacts resulted in S&P Global Mobility lowering the forecast for global sales by around one million units per year over 2025, 2026 and 2027, with the biggest impact in 2026. Our current US sales forecast has been lowered to bottom end of the consensus.
Simple Reciprocal or Matching Tariff
In this scenario, we see the US setting import tariffs to match those imposed on its exports by each of its major trading partners, establishing tariffs based on trading pairs, including automotive products.
For example, the US would match the EU Common External Tariff (CET) of 10% instead of using the existing 2.5% US passenger vehicle tariff rate. We have not assumed that the US would match a lower tariff pairing at this stage, however.
While Japan does not assess a tariff on US vehicle imports, the US assesses a 2.5% tariff on vehicles imported from Japan. We do not expect the US would lower its tariff on Japanese vehicles, though that would be more accurately reciprocal. Changes based on the relationship between trading pairs may be delayed as the path would require more complex customs preparation work.
We could see different products from a given country having different tariff rates as well. An announcement is expected in April 2025.
Latest activity aside, the universal tariff case is already presumed. However, Japan and South Korean exports could be exempted, causing Europe and rest-of-world exporters to lose out.
Within this potential outcome, we see potential for a sub-scenario. It is possible that a better global outcome could occur if trading partners lowered import tariffs to head off the US action by offering to reciprocally match the original US import rate. The positive impacts if this occurs would paradoxically mainly be felt by non-US exporters.
Reciprocal with VAT, Non-Tariff Barriers
President Trump is also concerned with non-tariff barriers to exports from the US and sees potential to address these concerns. One approach would be for the US to start with the reciprocal tariff-matching scenario but also addressing non-tariff barriers through an additional top-up tariff. Non-tariff barriers include itemized trade grievances, market access issues or foreign exchange manipulation.
The US could make the case that VAT (value added tax) systems in place throughout most of the rest of the world are a form of market distortion. In this scenario, the US requires redress via an additional tariff proportional to the level of VAT applied in the destination country. Note that VAT systems do not directly treat imported goods differently to domestically made goods, however.
We treat Mexico and Canada (both have VAT) separately, though there remains possibility of a limited tariff on each of those countries under this approach.
If this is the path that the US takes, we would expect tariffs on all trading partners to increase relative to current and historic settings. The hardest-hit regions would be the European Union and Asia. Vehicles imported from mainland China, excluding battery electric vehicles (BEVs), would be particularly impacted. Japan and South Korea would also see auto import tariffs rise.
Foreign currency exchange changes and latent prior devaluations which were not priced in could offer some protection to some importers (notably Asian). Presuming this scenario sees tariffs on the automotive sector, without exemptions, it is possible that annual US vehicle sales could decline between 150,000 and 600,000 units.
Trump Tariffs Impact: Uncertainty and Change for the Automotive Industry
The environment remains fluid and S&P Global Mobility has not yet changed overall automotive industry forecast assumptions. The use of tariffs to drastically increase the opportunity for US exports may be relatively limited. US buyer expectations are dissimilar from many other countries. Even without trade barriers, US-centric vehicles have other barriers to consumer adoption in many countries.
Further, the uncertainty chaos is likely to delay vehicle investment, development and production decisions. The US automotive market could become further fractured from other global markets. For some vehicles facing higher tariffs and exported to the US in low volumes, it may be that leaving a segment or market is a more effective use of capital. Automotive industry analysis suggests that in such a volatile environment, companies will need to rely on scenario planning to navigate uncertainty and align their strategies with potential future outcomes.
A more comprehensive analysis is available to S&P Global Mobility customers on AutoInsight, AutoIntelligence, and AutoTechInsight.
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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.
S&P Global Mobility experts provide guidance on the ramification of new government policies, including tariffs, for the automotive industry