Trump Executive Order Eases Impact of Auto Tariffs but Adds Another Layer of Complexity

Key takeaways: 

• U.S.-assembled vehicles will receive some tariff relief depending on the percentage of U.S or USMCA-compliant content 
• Tariffs will not be ‘stacked’ to prevent further undue economic burden on the auto industry 
• Questions remain on how documentation will be submitted and how manufacturers will be reimbursed for previously paid tariffs

The latest development surrounding President Trump’s quest to bring manufacturing back to the United States comes by way of a tariff revision to the recent 25 percent duty on imported vehicles and auto parts.

The relief provided by the latest executive order was met with mixed reactions in the automotive industry. Some celebrated the “small win,” grateful for any break they were given, and others criticized the recent action as “not doing enough.” Regardless of personal opinions on the effectiveness of these measures, automakers and suppliers will face an added layer of complexity in assessing their tariff burden, recouping previously paid tariffs, and changing processes to qualify for the relief.

We will provide updated information when further guidance from the federal government and the administration is available. For now, we explain the revisions in more detail below.

Details on the tariff shelter

Automakers that assemble their vehicles in the U.S. will be eligible for an offset to a portion of the tariffs assessed, equal to 3.75 percent of the manufacturer’s suggested retail price (MSRP) value of all automobiles assembled in the U.S. from April 3, 2025, to April 30, 2026 and 2.5 percent the following year (May 1, 2026 to April 30, 2027). These offset portions were determined by what would be owed when a 25 percent tariff is applied to 15 percent of the value of a U.S.-assembled vehicle in the first year and applied to 10 percent in the second year.

If a vehicle is built in the U.S. with 85 percent U.S. or USMCA-compliant content, it will effectively be exempt from tariffs. If that same vehicle were made of 50 percent U.S. or USMCA-compliant content and 50 percent from foreign countries, then the manufacturer would effectively only be subject to a 35 percent tariff in the first year rather than 50 percent.

This relief applies ONLY to vehicles assembled in the U.S.; all other imports will face a 25 percent tariff.

A separate executive order addresses tariff stacking; stating that goods subject to 232 Automobile and Automobile Parts tariffs should not be subject to additional tariffs under 232 Steel and Aluminum or the IEEPA tariffs on Canada and Mexico.

Industry awaits further clarification and guidance on new orders

The federal government has promised to develop a system and guidance for manufacturers to submit documentation for import adjustment offsets. Manufacturers will likely have to provide projected production numbers and plant locations to qualify.

Questions also remain on how automakers importing USMCA-compliant vehicles will determine the value of U.S.-produced content, which will determine the impact of the tariff on components and parts. Aside from that, clarification is needed on how automakers can recoup tariffs that had already been paid before the revisions.

Looking ahead

Shifting production onshore and altering solidified global supply chains takes years and billions of dollars. From raising capital to planning, construction, staffing, tooling, and beyond, it takes a massive effort to make changes, and automakers are caught between avoiding tariffs and making monumental changes based on extremely volatile tariffs.

These revisions were meant to help the automotive industry " during this transition.” A senior official from the Department of Commerce told reporters that automakers would announce additional shifts for workers, new hires, and expansion plans for new facilities.

It will take a while to fully realize the true impact of the rapidly evolving tariffs and assess whether they have accomplished the ultimate goal of shoring up U.S. manufacturing. In the meantime, suppliers need to examine their supply chains and work with relevant parties including brokers to ensure compliance with the latest policies and regulations. Forecasting and cash flow management will also be critical as we wait to see what happens next.

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