How will U.S. tariff policy impact a bruised automotive industry

Read our latest blog analyzing how U.S. tariff policy in a second Trump presidency could impact the automotive industry. Discover insights into the potential implications of escalating trade measures, including tariffs on electric vehicles, critical minerals, and semiconductors. This analysis explores the challenges of navigating complex global supply chains, the push for domestic job creation, and the ripple effects on competitiveness and sustainability in a rapidly evolving market.

How will U.S. tariff policy impact a bruised automotive industry?

With President Trump in his second term, months of business uncertainty have come to an end. However, that doesn’t imply any clarity either. Based on recent soundbites and speeches to Donald Trump’s supporters, we can anticipate a continuation of the unconventional and unpredictable governing style observed during his first presidency.

If the discussion around tariffs finally become policy, how will a struggling U.S. automotive industry navigate new trade measures while remaining competitive in a global market?

From U.S. election to presidency to tariffs

One thing is clear: Donald Trump has consistently expressed his strong support of tariffs. Back in 2018, off the back of a U.S. Trade Representative (USTR) investigation under Section 301 of the Trade Act of 1974, the Trump Administration imposed additional tariffs on around $400 billion of goods from the People’s Republic of China (China). The Biden Administration left these in place while legal disputes continued.

Contrary to public perception, tariffs are paid by importers, not exporters—a cost that is often passed on to U.S. consumers. As seen in 2017, some of Trump’s tariff proposals may serve as a negotiation strategy aimed at bringing more well-paid jobs back to the U.S.

Repatriating jobs through domestic production of high-value tech will boost the U.S. economy in the automotive, batteries, electronics, and semiconductors industries. By proposing tariffs, he may seek to encourage China to invest in U.S.-based manufacturing, a strategy reminiscent of China’s knowledge transfer initiatives that paired global automotive leaders with local partners. Trump was the only candidate to say he would welcome Chinese auto manufacturers in the U.S. if they were hiring US citizens.

But there is a fly in the ointment. The automotive industry relies heavily on Chinese sub-assemblies and critical minerals. Escalating tariffs on these components could deter investment and complicate the industry’s ability to remain cost competitive.

Section 301 trade remedies

Tariffs were increased in September 2024, with the rate on electric vehicles (EVs) set to 100%, critical minerals to 25%, semiconductors to 50% (in 2025), and lithium-ion EV batteries to 25%. The stated rationale for these measures was concerns over China’s use of cyber intrusions and cyber theft to acquire foreign technology. Such decisions undergo thorough review, with the USTR required to demonstrate that there has been material injury to domestic industry.

While such tariffs are designed to protect domestic industries, they leave the industry in a tangle of complexity.

Take an EV’s battery as an example. Under the USMCA (United States-Mexico-Canada Agreement) trade agreement, a vehicle must have 75% of its components manufactured in one of the three participating countries to be imported tariff-free. Since the battery’s cells are likely sourced from China, determining which tariff applies can be a challenge.

Further compounding the issue are the federal tax credits when buying a new EV. With the Treasury Department focused on delivering financial benefits for commerce at home, many vehicles are excluded as they use critical materials from a Foreign Entity of Concern (FEOC). Since around 90% of the battery supply chain originates from China, only 20% of EVs are eligible for the credit. This only serves to limit adoption and much-needed trade.

Are tariffs being applied fairly?

So, is the U.S. offering a level tariff playing field? Well, the U.S. Department of Commerce recently undertook an Antidumping and Countervailing Duties (AD/CVD) investigation into aluminum extrusions. These are an essential part of EV battery enclosures and other automotive parts.

U.S. businesses claimed that 14 countries, including China, Colombia, Mexico, and Italy, were engaging in unfair business practices, such as subsidies or price dumping. Although the U.S. International Trade Commission (ITC) concluded that these countries engaged in such activities, no material injury to domestic interests could be determined, so no AD/CVD tariffs were applied.

Such decisions underscore the nuanced application of tariffs, leaving industries to navigate a patchwork of rules and policies that often lack consistency.

As President Trump assembles his cabinet, we will surely hear more about tariffs and domestic jobs. However, tariffs are a broad policy that can carry risks such as potential inflation and diminished foreign investment. For an industry heavily reliant on global trade and intricate supply networks, these policies require careful monitoring and strategic adaptability. The key takeaway for stakeholders across the automotive value chain is clear: be prepared for a dynamic and evolving policy environment.

Written with exclusive insights by analyst Adam Ragozzino and attorney associate James Kim of ArentFox Schiff. To navigate the complexities of U.S. trade policy and its impact on the automotive industry, leverage our in-depth research and expert analysis with Wards Intelligence, now part of Omdia. Our comprehensive insights cover market trends, regulatory shifts, and the evolving supply chain landscape, helping businesses stay ahead in a rapidly changing global market. Explore our latest reports to gain a competitive edge in the future of mobility.