Historic tariffs, in place for less than a month, have begun to raise the prices of new and used cars. A second set of tariffs, which affects car parts, threatens to increase the effect in May. New reports say the White House is having second thoughts.
The reports emerged first in the Financial Times, citing unnamed sources close to the White House. CNBC later seconded the reports, saying it had White House confirmation.
Three Sets of Tariffs
A tariff is a tax on imports. The company importing something into the country pays it, but usually passes the cost on to Americans by raising prices. Almost no industry has profit margins high enough to absorb tariffs as high as those the Trump administration has enacted.
Three separate sets of tariffs affect car prices. Two of the three are already in place, with a third set to take effect soon.
One applies a 25% levy on all steel and aluminum goods imported into the U.S. This is already in place, but has the lightest impact on car prices of the three, as automakers already use much domestic metal.
A second applies to finished cars imported from outside North America.The tariffs exempt most cars built in the U.S., Canada, and Mexico under a trade pact Trump negotiated during his first term in office, the U.S.-Mexico-Canada Agreement (USMCA). A small number of cars built in North America are not exempt because they use too many imported parts to qualify under the USMCA.
A third set will apply to imported car parts, including those made in Canada and Mexico. This set is not in effect yet. The order creating it gave the Commerce Department until May 3 to enact it. To do so, the department must publish rules explaining how it will determine where a part comes from.
That’s a more complex problem than it might at first seem. Many car parts are made of smaller parts, and parts routinely pass in and out of the U.S. as they are assembled into larger and larger components.
Easing Could Take Several Forms
Tariff easing could take any of several forms. CNBC reports President Trump “is considering exemptions for automakers from some tariffs.” That exemption, however, “would be separate from 25% tariffs on imported vehicles as well as 25% tariffs on imported auto parts that is scheduled to take effect by May 3.”
Bloomberg reports, “One measure would spare automobiles and parts already subject to tariffs from facing additional duties from levies on steel and aluminum imports.” The car and car parts tariffs apply on top of steel and aluminum tariffs, an effect economists call “stacking.”
However, the steel and aluminum tariffs have a much lower impact on car prices than the car and car parts tariffs, as automakers already use a lot of domestic metal. Removing those would change car prices less than most other actions the White House could take.
A different proposal, Bloomberg says, would exempt auto parts built in Canada or Mexico, as long as they comply with the USMCA’s terms. That would have a much larger impact on car prices.
It would also save the Commerce Department from having to determine which parts come from the U.S., Canada, or Mexico.
Situation Likely to Remain Fluid Next Week
With two of three tariff sets already in place, the deadline for a major policy change is likely May 3, when Commerce is scheduled to enact the parts tariffs.
That could make next week a volatile one for car shoppers.
Reuters notes, “The development comes as U.S. automakers scramble to find ways to tackle Trump’s on-again, off-again tariffs, which are expected to raise car prices in the country, dent profits of carmakers and parts suppliers, and disrupt the long-stretched supply chains.”
Automakers, car dealers, and parts suppliers have several trade associations that lobby the U.S. government. Six of those groups, representing virtually the entire industry, sent a joint letter to the White House last week asking for relief from the tariffs. Industry publication Automotive News called that move “a rare joint statement from groups representing businesses across the auto industry’s vast supply chain, from parts makers to dealers.”
All the lobbying could still fail.
Bloomberg notes, “In the Oval Office on Wednesday, Trump was asked if he was considering changes to auto tariffs and indicated he was not.”