Opinion: Tariff shockwaves, investment freezes and cost pressure reshape global automotive logistics in 2025

The automotive sector has been facing a multitude of headwinds including the difficult transition to electrification, structurally lower volumes post-Covid, rising costs, and the threat from cheaper vehicles from China, to name but a few. However, US president Donald Trump’s new trade war adds to their woes and will fundamentally reshape the global automotive supply chain. In this series, Automotive Logistics will delve into each challenge facing the industry to explore what they mean, and how the automotive industry can prepare.

1. Trump, tariffs and trade turmoil

On April 9 2025, President Trump caved in to pressure from the stock markets and bond markets where he performed a U-turn on his widely derided tariff policy.

But it’s important to understand the context and run up to that climb down to understand what is likely to happen next – as in theory those initial ‘reciprocal’ tariffs on individual countries could return after the 90-day pause.

Whilst on the face of it this ‘pause’ may seem like a welcome reprieve, at the same time it compounds even further the sense of uncertainty.

US president Trump’s so-called ‘Liberation day’ of April 2 announced sweeping tariffs which had the potential to upend 80 years of successful globalisation and free-market trade consensus.

For general (non-automotive) goods, the so-called ‘reciprocal’ tariffs applied from April 9 would have been applied at 10% for the UK, 20% for the EU, and with a general principle of higher tariffs for countries with a large trade deficit with the US leading all the way up to an eyewatering 145% tariffs for China.

Notably, Canada and Mexico were exempt from Trump’s ‘reciprocal’ tariffs because they are subject to a specific executive order with the justification of a ‘fentanyl’ crisis under the guise of national security and are thus subject to a 25% tariff (on top of the previously enforced 2.5% tariff) for goods that do not comply with the US-Mexico-Canada (USMCA) rules of origin.

The claimed objective of the tariff policy was to re-shore and ‘bring back’ manufacturing jobs to the US which have been ‘lost’ overseas – however the net result is likely to be the exact opposite. The previous Biden administration’s 2022 Inflation Reduction Act (IRA) was demonstrably a far more effective (and less economically destructive) carrot rather than stick approach which produced a multitude of new investments in the US peaking during that administration.

Fundamentally, the current US administration wanted to unwind decades of economic integration and risk a 1930s-style global trade war.

The vast majority of economists, banks, businesses, governments and trade experts took the strong view that these tariffs would be deeply damaging: they would slow down trade, slow economic growth, and result in a lower standard of living for individuals. Furthermore, many economists were openly condemning the tariff policy as likely to trigger a recession.

Some believe the April 2 ‘Liberation Day’ (if followed through) would have gone down in history as one of the greatest acts of self-harm to the US economy as well as the global economy – and the financial markets overwhelmingly agreed.

Stock markets around the world unanimously spoke – and all fell sharply and were approaching the technical definition of a market crash (a 20% fall).

What’s likely to happen next

Of course, the key word here is uncertainty. The ‘90-day pause’ is far from guaranteed and does not seem to apply to the automotive sector. The initial level of tariffs was widely perceived as unsustainable and, if kept in place, would have had a devasting impact upon the automotive OEMs that export to the US, but also the North American automotive OEMs themselves.

Trump’s strategy initially appeared to be a power play. To launch a campaign of ‘shock and awe’ by imposing unrealistically high tariffs to begin with so that governments & industries come begging cap in hand to Trump to negotiate individually in exchange for other concessions – whether it is more access to their markets, adjustments to exchange rate, or other benefits. However, the overwhelming pressure of bond markets meltdown made him cave before that.

The reality was also that in most cases countries had retaliated strongly. Even the slow-moving EU had imposed some limited retaliatory tariffs and announced a wider package on April 9. Nonetheless, even before the US tariff announcements, the EU has continually offered a zero-for zero tariff deal i.e. entirely free trade.

We have already witnessed Chinese retaliatory tariffs as high as 125%, and this will hopefully drive everyone to the negotiating table, and lead to agreement for lower tariffs.

As we predicted in our recent European Automotive Logistics Market Report 2025-2035 political, financial market and consumer pressure ultimately forced the Trump administration to back down, and therefore the current high tariff regime has been moderated. 

However, our working assumption is that moderate tariffs will remain in place in the medium to longer term at a significantly higher rate than the previous 2.5% ‘most-favoured nation’ automotive tariffs.

But there is an even more serious problem for the US and the Trump administration - the tariff turmoil has significantly damaged the US’ reputation and standing in the world as a serious place to do business. If you were the CEO of a major OEM or tier supplier, you simply could not rely on the Trump administration or the US to provide a stable environment for long term investments in the country. That will hold back the country for at least this four-year administration and possibly beyond.

2. Investment uncertainty

The extreme uncertainty of the Trump tariff announcements, whether they are permanent, moderate or even cancelled at short notice, ultimately means that the business investment climate is one of extreme uncertainty or even paralysis.

Leading automotive experts have stated that you simply can’t make 10-year investment plans if Trump changes his mind in the next 10 minutes because of no clear return on investment (ROI).

Whilst there is potential for OEMs and tier suppliers to grow and invest in North America and to reshore as much production as possible, the reality is that Trump will likely only be in power for ~3.5 more years, and so the tariff landscape may drastically change at that point, nullifying any investment decisions. Therefore, any investments need to take a much longer-term view.

It is true that just one week before the April 2 tariff announcement, Hyundai committed to a $21 bn investment through 2028 in the US including a new $7.6 bn Metaplant in Georgia targeting 1.2m annual units and 100,000 jobs, and includes vertically integration and localisation of steel, batteries and vehicle production. Alabama and Georgia production facilities will also be upgraded, including Hyundai Motor Manufacturing Alabama and Kia Autoland Georgia. However, the reality of any such new investment is that it will take several years. Furthermore, new plants are highly automated – particularly so in battery and EV production, demonstrating that reshoring production to the US will only generate a relatively small number of jobs. Hyundai states that their $21 bn investment will only create 14,000 direct full-time jobs by 2028 with over 100,000 total direct and indirect job opportunities anticipated across manufacturing, technology, and infrastructure – in a country of 340m people.

Nonetheless, whilst this investment is welcome, this is very much an isolated case that the Trump administration understandably seized upon as ‘proof’ of bringing auto production back home.

However, it must be remembered that tariffs will inevitably be inflationary. A weak economy, and vehicle price rises will lower consumer confidence and vehicle demand, with less disposable income for discretionary vehicle purchases. Therefore, vehicle manufacturing capacity in the US is overall likely to decline, leading to job losses elsewhere and nullifying any potential gains that individual investments may make.

So, from an automotive logistics providers perspective, there is likely to be a freeze on investment in capacity enhancement or any other non-essential area that can be trimmed back.

Having said that, the extreme uncertainty may well actually lead to very specific strategic investments around increasing flexibility, agility, and resilience by investing in digitalisation to enhance visibility, transparency, and efficiency, improving network design, and optimise capacity utilisation.

And one other possibility could emerge: if the US persists in its deeply isolationist/protectionist trade policy, the rest of the world could strategically make up for this loss of business by lowering trade barriers between all other countries e.g. Canada to EU, China to EU, between Asian countries, etc. and this would open up all sorts of new inbound as well as outbound FVL business for LSPs.

3. Cost pressures

Pre-tariffs, the automotive OEMs were already under increasing financial strain, driven by inefficiencies in production, heightened competition, and the need to transition to EVs. With demand not recovering to pre-COVID levels, OEMs are facing a price war, particularly against cheaper Chinese imports. This has resulted in margin compression, prompting OEMs to aggressively cut costs, including through plant closures and job cuts.

However, the wide-ranging tariffs will have a further profound impact on margins, resulting in a decline in profits and instabilities caused in both vehicle sales and supply chains which will add to the barrage of disruptions already being faced by automakers and suppliers from slowing down in electrification and grappling with heightened competition from Chinese OEMs. Automotive component suppliers, especially small and medium sized tier suppliers, will not be able to re-shore component manufacturing to the US due to higher US labour costs impacting their financial viability.

For logistics providers, these cost pressures will manifest in increased scrutiny of both inbound logistics and FVL cost structures. While cost reduction is a primary focus, it will require more than just freight rate cuts. Logistics providers must innovate through process optimisation, technology upgrades, and improved network design. There is also likely to be a focus on maintaining low vehicle inventory to reduce working capital as a top priority for OEMs, presenting new challenges for logistics providers.

Moreover, digitalisation, AI, and automation are emerging as key tools for improving efficiency and reducing costs in the logistics sector. However, the return on investment for these technologies remains a challenge, and logistics providers must balance cost reduction with strategic investments to remain competitive in such an uncertain climate.

As the automotive industry continues to evolve, logistics providers must navigate these dynamic trends, from adapting to tariff turmoil, nearshoring, industry restructuring and cost-cutting. The key to success will be adapting to shifting supply chains, embracing technological advancements, and staying ahead of regulatory changes. For those who can innovate and respond quickly, the immense challenges of 2025 and beyond could still present significant opportunities for growth and transformation in automotive logistics.