The race before the border closes, as auto logistics braces for a 25% tariff reckoning

With the US government’s announcement of a 25% tariff on imported vehicles and parts, effective April 2, 2025, both automakers and logistics providers are rushing to adjust their strategies to navigate the new economic reality. These tariffs, although not unprecedented, come with a heightened sense of urgency, given the vast ripple effects they are likely to cause across the global automotive supply chain. 

The move has not only sparked immediate challenges for shipping lines, ports and manufacturers but has set off a delicate interplay of rerouting vessels, pushing vehicles through congested ports and scrambling to align production schedules – all while the clock ticks down to the tariff deadline. 

A surge in vessel movements 

As president Trump’s tariffs on automotive imports loom, shipping lines have been directed to reroute vessels bound for the US from Asia and Europe. According to reports, these vessels are now transporting significantly higher numbers of vehicles than usual, as automakers strive to get vehicles into the US before the tariffs go into effect. 

Vessels carrying thousands of vehicles are being directed away from their usual destinations to ports where vehicles can be unloaded without the penalty of the looming tariffs. The surge in shipments is being described as a “rush” in the final days of March, marking the last window for automakers to move vehicles at current costs before the tariffs take hold. Ports are experiencing significant congestion and strain, as logistics providers work to manage this influx of cargo. 

This situation creates a complex logistical environment where the standard rhythm of vehicle shipments is disrupted by the need to get vehicles across the border as quickly as possible. It’s a chaotic but essential response to an uncertain tariff system – one that will have a profound impact on port operations and shipping lines as they grapple with the sudden spike in volume. 

USMCA and tariff exemptions face a race against time 

For North American automakers, the US-Mexico-Canada Agreement (USMCA) offers a temporary reprieve from the tariffs, with certain parts and components exempt from the 25% penalty. Under the terms of the USMCA, certain automotive parts qualify for exemption if they meet specific regional content requirements. These requirements stipulate that a certain percentage of the parts used in a vehicle must be sourced from North America. 

This exemption has been crucial for manufacturers that rely heavily on cross-border supply chains between the US, Mexico and Canada. For example, auto parts such as engines, transmissions and other critical components that meet the content rules can pass through without incurring the tariff penalty.  

Additionally, steel and aluminium, which are integral to vehicle production, are subject to their own specific regional content rules under the USMCA. These rules mandate that a certain percentage of steel and aluminium used in the production of vehicles must come from North America. These provisions are designed to encourage domestic production of key materials and reduce dependence on foreign imports, particularly from countries outside the trade agreement. 

However, recent developments involving retaliatory tariffs from the European Union (EU) in response to the US’s steel and aluminium tariffs complicate this picture. The EU has signalled its intent to impose tariffs on US steel and aluminium exports, which could lead to increased costs and disruptions in the global supply chain for these materials. While the USMCA has established a framework for North American sourcing, the global steel and aluminium market’s volatility – driven by trade tensions – could influence costs for automakers. Companies may need to adjust their sourcing strategies to mitigate the impact of these tariffs and continue meeting USMCA’s content requirements. 

However, this exemption for North American automakers is only temporary. In some cases, such as Audi and BMW, manufacturers that fail to meet the USMCA’s requirements will soon find themselves vulnerable to the full brunt of the tariffs. As the tariff exemptions near their expiration, automakers that rely heavily on Mexican production face tough decisions. For some, this may mean ramping up domestic production to meet US market demand while avoiding the additional cost burden of tariffs. 

The geopolitical and economic impact on major exporting regions 

The tariff increase has serious implications for several key regions that supply vehicles to the US. Among the most affected are Germany, Mexico and Japan – important manufacturing bases for the global automotive supply chain. 

The EU, particularly Germany, faces significant challenges as the US increases tariffs on European vehicle imports. In 2024, the value of EU automotive exports to the US stood at €52.5 billion ($56.6 billion), with Germany accounting for 65% of that, according to Morningstar DBRS. Manufacturers such as BMW, Mercedes-Benz and Volkswagen will now face higher costs, which could be passed on to consumers. However, these premium manufacturers also benefit from pricing power in the luxury vehicle segment. The potential for price hikes to offset tariff costs is one strategy, but this will come with risks, including reduced demand if vehicles become too expensive.  

The situation in Mexico is equally complex, with vehicles and parts from Mexican plants subject to new tariffs unless USMCA content requirements are met. As a major hub for US vehicle production, any disruption to Mexican manufacturing or export routes could send shockwaves throughout North America’s automotive supply chain.  

Similarly, with strong automotive exports to the US, Japan has seen significant impacts on companies including Toyota and Honda, while South Korea’s Hyundai also faces uncertainty. Shares of these companies experienced notable declines following the announcement of the new tariff policy with Toyota falling by 2.7%, Honda by 3% and Hyundai dropping 4%. In response, Hyundai has announced a substantial investment in US manufacturing, including a $5.8 billion steel plant in Louisiana, aimed at mitigating the impact of these tariffs. 

What are the options for automakers with vehicles already in transit? 

For automakers that already have vehicles in transit, the immediate challenge is determining how to manage these shipments in light of the new tariffs. Several options are available to mitigate the impact, though each comes with its own set of challenges.

One potential strategy is rerouting shipments to ports in regions where tariffs don’t apply, or where vehicles meet compliance criteria under the USMCA. This move can help mitigate costs, but it also strains shipping lines, creating potential delays in delivery. 

Another option is diversifying manufacturing. Some manufacturers are likely to accelerate their efforts to shift production to the US or increase the use of US-sourced components in their vehicles. This could involve ramping up existing US-based facilities or even rethinking global production footprints to better align with the changing regulatory landscape. Shifting production domestically may help avoid tariffs, but it also requires significant investments and adjustments to existing supply chains as seen with BMW’s investment in localising its supply chain to reduce lead times and transportation costs.  

In addition to these strategies, increased transparency and communication within the logistics network will be crucial for managing the complexities introduced by the new tariffs. Collectively, the industry is pushing for greater visibility into the movement of goods and the status of shipments. This was a big topic at the recent Automotive Logistics & Supply Chain Europe event, where industry leaders emphasised the importance of communication in scenario planning and operational execution in response to the shifting regulatory environment.

While automakers continue to assess the impact of these new tariffs, industry associations are also closely monitoring the situation. MEMA has stated that the Trade Working Group is meeting today (March 27) to evaluate the tariff announcement. The association will have more details once its analysis is complete.

The long-term consequences of new trade policy 

While the immediate effect of the tariffs will be felt by logistics providers scrambling to move vehicles across borders, the longer-term impact could be far more profound. As automakers face the full weight of the 25% tariff, many will likely double down on efforts to bring production back to North America to protect their margins. This may accelerate the shift to more US-based production, as companies such as Ford, GM and Stellantis seek to adjust their operations and supply chains to stay competitive in the US market. 

Moreover, the push for domestic manufacturing could spur further investment in the US. This would not only protect automakers from tariffs but could also serve to stimulate job creation and manufacturing capabilities on US soil. 

Matt Blunt, president of the American Automotive Policy Council (AAPC), reinforced this notion, stating: “US automakers are committed to president Trump’s vision of increasing automotive production and jobs in the US and will continue to work with the Administration on durable policies that help Americans. In particular, it is critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector that has been a key success of the president’s USMCA agreement.” This statement from the AAPC, which represents Ford, GM and Stellantis, highlights the importance of maintaining competitiveness and ensuring consumer prices remain stable in the face of tariffs. 

However, this shift comes at a cost. Building new facilities, ramping up production and investing in automation will require substantial capital investment. Additionally, the push for domestic production may lead to increased operational complexity, particularly for companies reliant on global supply chains that have already been tested by previous disruptions.