Trump trade update: Japan and EU auto tariffs advance, what’s next?

The new executive orders provided more clarity for trade with the EU and Japan, and a timeline for implementing an adjusted tariff amount.

There is no change to the top-level terms. Each agreement set an import tariff of 15% for most goods shipped to the US, and zero tariff for most US exports to those countries, including autos and auto parts. The Section 232 tariffs on steel, aluminum and copper remain, though the US and the EU are working toward a quota system for steel and aluminum exports to the US.

Japan auto tariffs: Timing questions remain on implementation

The US-Japan trade framework, outlined in the Sept. 4, 2025 executive order, specifies that a 15% reciprocal tariff on general goods is retroactive to Aug. 7, 2025, aligning with the latest reciprocal tariffs for most countries. 

However, it is still unclear if the15% Japan auto tariffs will be retroactive to the same date. It may be that Japan auto tariffs are not reduced to 15% until mid-September.

Japan agreed to reduce non-tariff barriers to US imports, including autos. The only autos change detailed so far is that Japan will allow imports of US-produced vehicles which meet US safety and emissions standards to be sold in Japan without additional testing or certification.

EU auto tariffs: Reduction hinges on legislative action

The US-EU trade framework, which was signed on Aug. 21, set a pathway for reducing EU auto tariffs to 15%. However, it also noted that the US would not reduce the 25% Section 232 tariff on autos and auto parts until the EU “formally introduces the necessary legislative proposal to enact the tariff reductions.” 

The European Commission introduced the two necessary proposals on Aug 28; according to the agreement, the action will mean that the 15% EU auto and auto parts tariffs will apply retroactively to Aug 1, 2025, once the proposals are passed. 

Passage of the proposals may take several weeks and may not be complete until October.

South Korea: No progress on agreement

While the Japan and EU auto tariffs frameworks are advancing, the South Korea agreement, which was confirmed by presidents of both countries via social media platforms in late July, has not moved forward. The framework has not been published and an effective date is uncertain.

Broader commitments made to US investment 

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

There are some differences in the amount of the investment scope and amount, but the Executive Orders are clear that the US government will oversee selection of these projects. For example, the Sept. 4 Executive Order on the Japanese agreement says that the US$550 billion investments “will be selected by the United States Government.” A mechanism for this process has not been defined.

Tarff complexity: Metal vs. non-metal components 

The IEEPA reciprocal tariff is also applied to the non-metals value of a steel, aluminum or copper derivative part, with the value of the metal tariffed at 50%, creating a complicated process for determining the tariff amount. 

Tariff application is based on the Harmonized Trade Schedule of the US (HTSUS) code and categorization. Exemptions for USMCA-compliant parts and the value of US-sourced components continues.

When auto tariffs were first announced earlier this year, a fast reaction was expected from the industry amidst an inability to absorb the additional costs. OEMs were expected to make larger adjustments to production and pricing strategies quickly. 

Instead, most automakers have held steady, making relatively small pricing and production changes.  Some have even made reductions in certain manufacturer’s suggested retail prices (MSRP).  The result has been more robust US sales, and reduced OEM earnings. 

To avoid passing costs to consumers, automakers have turned to cost cutting, product mix adjustments, making any relatively easy sourcing adjustments quickly, and balancing some lost margin in the US with pricing and cost actions in other markets. Production adjustments have been measured, though the decline in US inventory does reflect caution. 

Vehicle prices are still expected to increase, especially after the industry feels there is a confidence level in the trade environment. So far in 2025, however, the price increases have been slow and indirect, rather than abrupt or designed to recapture the increased costs directly. The impact on vehicle pricing is poised to be less dramatic than initially expected, though it is expected to be more impactful in 2026 than in 2025. 

Despite progress on some fronts, several key trade issues are unresolved.

North America: USMCA under pressure

Uncertainty remains in renegotiation of United States Mexico Canada Agreement (USMCA) and what form an interim agreement between the US and Canada and the US and Mexico might be; the current situation sees Canada and Mexico imports subject to some of the highest tariffs. 

China trade and supply chain risks

There also remains potential for disruption on availability of China-sourced rare earths, used in motors and batteries, and the outcome of the US-China trade talks.  

Legal challenges and investigations

Two court rulings have determined that the US President overstepped authority in enforcing sweeping, high and far-ranging tariffs without Congressional approval. We expect the framework agreements to mute impact, and there are other routes for the President to maintain a high-tariff environment. The ruling of the US Supreme Court could have an impact. 

There are also ongoing Section 232 investigations into semiconductor chips and medium- and heavy-duty commercial vehicles. Without the investigation results and no tariffs yet implemented, we have not factored this into the baseline forecast.

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