Impact of the new US trade policy includes the potential cumulative effects of ‘tariff stacking’

Global carmakers and auto parts suppliers are trying to gauge what this week’s enforcement of 25% tariffs by the US Trump administration on their vehicles will cost and how that will accrue when tariffs on parts are added no later than May 3.

The impact of the new US trade policy includes the potential cumulative effects of ‘tariff stacking’, which relates to other tariff proposals, the range and variety of the parts covered from next month, and the multiple border crossings made as vehicle subassemblies come together. That would increase the price of complex systems, such as the powertrain, even if they are assembled in the US.

The picture is further complicated by the wider application of US tariffs on international trading partners (compared to the first Trump government) and the fact that those tariffs are applied so unevenly across countries. They range from 10% to 49% (see Liberation Day lists on right). Canada and Mexico are not included on the list because of exemptions under the existing US-Mexico-Canada Agreement (USMCA) and those automotive goods that are not covered by local content rules are already subject to a 25% tariff. Canada has announced its own retaliatory tariffs of 25% on finished vehicles from the US.

Russia is conspicuous by its absence from the list. The country is subject to wide-ranging sanctions but still has more trade with the US than other countries included on the list and that may be to do with Trump looking at economic leverage to end the conflict between Russia and Ukraine, according to a number of market analysts.

The new tariffs are high for China, with an additional 34% added to the existing 20% already place. China has responded with its own 34% retaliatory tariffs on US goods. However, this time around Trump is also targeting Vietnam with a 46% tax on imports. Asian countries that are treated less severely under the new US tariffs are the Philippines (17%), Malaysia (24%) and South Korea (25%). According to managing director and head of supply chain advisors at Drewry maritime analyst, Philip Damas, much higher tariffs on Chinese goods will prompt favoured south-east Asian neighbours to prepare an influx of factories relocating if these tariffs are permanent. “Malaysia, Indonesia and the Philippines were already positioning themselves to attract investments, particularly in electronics and automotive manufacturing,” said Damas.

Product groupings 
The articles subject to the tariffs include those covered by the Harmonised Tariff Schedule and the six product groupings established by the Office of Transportation and Machinery covering bodies and parts, chassis and drivetrain parts, electrical and electric components, engines and their parts, tyres and tubes and those grouped under miscellaneous parts, including everything from brake fluid and radiator parts to vibration control systems. Broadly the tariffs on engines, transmissions, powertrain parts and electrical components will have major impacts on vehicle prices because they make up the large majority of a finished vehicle’s value.

In addition to the tariffs on vehicles and parts, the US Trade Representative is also proposing a specific tariff of $1m+ on ocean carriers’ based in China or carriers operating a vessel made at a Chinese shipyard. Carriers are also subject to penalties if they have one or more vessels on order in China. 

Exemptions to the tariffs currently include parts that are used in the automotive industry but not directly classified as auto parts, those that don’t fall within the tariff codes, or those deemed not significantly related to motor vehicles. 

Those parts categorised as not falling under the tariff codes include automotive components such as electrical connectors that may be classified differently from typical automotive parts, according to the Automotive Industry Action Group (AIAG). Importantly for the production of electric vehicles that can include battery packs, which could be classified under a different tariff code (such as for electric storage components. It also includes alternative parts, such as components for autonomous vehicle technology, which may not fall under traditional auto part codes (see table below).

Exemptions also currently apply to imports of automobiles that qualify under the US-Mexico-Canada Agreement (USMCA) on trade and the preferential duty treatment on 75% regional content. However, Trump said those exemptions will only remain in effect until the US Department of Commerce and Customs and Border Protection establish a system to assess the US content in those parts.

According to Drewry, the new tariffs will reshape international trade and transport. “Carriers, shipping lines and airlines alike will need to rethink their strategies and business models, adapting to new realities, prioritising protectionism, regional trade and strategic alliances, over the previously unfettered flow of goods and services across borders,” said Damas. 

Section 232 investigation 
The application of the tariffs on vehicles and parts follows an investigation by US Secretary of Commerce Howard Lutnick which concluded in February that finished vehicles and certain parts imports threatened to impair national security of the US under section 232 of the Trade Expansion Act. On March 26 Trump stated that supply chain problems experienced by US automotive manufacturers in recent years coincided with “unfair subsidies and aggressive industrial policies” abroad, which resulted in only half of the vehicles sold in the US being manufactured domestically. That situation jeopardised the US industrial base and national security, according to Trump, stagnating automotive production since 2019.

Those tariff rates imposed as a response could be cumulative, according to the Center for Strategic and International Studies (CSIS). It said automotive imports would not simply face a 25% import rate but would likely face the accumulation of the existing most favoured nation (MFN) rates, reciprocal tariff rates, the 25% automotive rate, and whatever additional barrier the Trump administration may decide to implement in the future.

The CSIS provided an example scenario of the estimated value shares and cumulative impact of tariff-affected auto components adding up to more than 100% (see table).

In a statement issued on April 3, Dr Ngozi Okonjo-Iweala, director-general of the World Trade Organization, the tariff announcements will have “substantial implications for global trade and economic growth prospects”.

Okonjo-Iweala said that while the situation is rapidly evolving, initial WTO estimates suggest that the measures so far introduced in 2025 could lead to an overall contraction of around 1% in global merchandise trade volumes this year and a downward revision of nearly four percentage points from previous projections. “I’m deeply concerned about this decline and the potential for escalation into a tariff war with a cycle of retaliatory measures that lead to further declines in trade,” he said.