27 March 2025
If you are covering the news that Donald Trump has imposed a 25% tariff on all US auto imports, please read the following comment from Lindsay James, investment strategist at Quilter:
Reports are that Donald Trump is planning to impose 25% tariffs on all US auto imports, including parts, three weeks after offering a one-month reprieve from tariffs to Canada and Mexico, where around one quarter of vehicles sold in the US are manufactured.
Europe will be heavily impacted, with the US accounting for over a fifth of the EU export market and around 18% of UK auto exports. In a sector that is vital for the European economy in particular, accounting for around 7% of GDP and 6% of employment, there will an obvious blowback on a sector that has already faced considerable headwinds from a painful transition to EVs alongside tighter regulations, in addition to slower replacement cycles from drivers and higher energy costs. This has led to the European autos index falling to a level that is more than 15% lower than a decade ago even before this latest blow.
Whilst the current administration has a reputation for offering a last-minute U-turn, the tone of this announcement suggested these were permanent tariffs, with no exclusions, coming into force on April 2nd, designed to counter what the US sees as an unfair playing field, in part due to the VAT regime. With the UK having already been impacted by steel and aluminium tariffs, there has so far been no suggestion of a carve-out.
With the clear objective of the US being to incentivise companies to move manufacturing to American soil, this will create enormous disruption for the years that it would take in practise to do. With enormous up front cost in addition to accepting what could be higher ongoing operating costs and a lengthy lead time to making the switch, a company could only consider this if there was clear certainty that the policy would be permanent, rather than lasting only the term of the President. Whilst tax incentives have been suggested, nothing has yet passed Congress. Whether companies have that conviction will be down to their individual appraisals, but in the short term, there will little protection from a move that will have enormous collateral damage.
