Update on Global Trends and Supply Chain Developments in the Automotive Industry

The current US administration has ushered in a period of new trade tensions and trade policy changes for US industry. While many sectors of the US economy were impacted by the administration’s policy changes, the automotive sector has been especially affected by both the administration’s new tariff measures and increased scrutiny of its foreign supply chains.

RECENT US TRADE POLICY DEVELOPMENTS

On March 26, 2025, US President Donald Trump, under Section 232 of the Trade Expansion Act of 1962, announced a 25% tariff on automobiles (passenger vehicles and light trucks) and certain automobile parts, such as engines, transmissions, powertrain parts, and electrical components. Importers of automobiles under the United States–Mexico–Canada Agreement (USMCA) could decrease their tariff exposure by certifying as to the amount of US content in each model imported into the United States. Thereafter, they would become eligible to apply the tariff exclusively to the value of the non-US content in the automobile.

Additionally, importers of qualifying automobile parts under the USMCA were spared from their tariff obligations until the secretary of commerce could establish a process to apply tariffs to the value of the non-US content of such automobile parts. Nonetheless, President Trump signaled that additional parts may become subject to tariffs, and this 25% tariff on automobiles and automobile parts went into effect on April 3, 2025.[1]

On April 29, 2025, the White House announced that automobile manufacturers would be eligible to receive an import adjustment offset applicable to Section 232 tariffs on parts for vehicles assembled in the US. The offset will be based off the manufacturer’s suggested retail price (MSRP) value of automobiles assembled in the US. This value will be 3.75% of the MSRP value from April 3, 2025, through April 30, 2026, and 2.5% from May 1, 2026, through April 30, 2027. This import adjustment offset can only be used for duties on automobile parts under Section 232 and not for other tariffs.

On April 2, 2025, President Trump, under the International Emergency Economic Powers Act, issued an executive order to impose “reciprocal” tariffs on virtually all foreign-origin imports into the US. The “reciprocal” tariffs were justified as a response to persistent US trade deficits and alleged unfair trade practices, including tariff and non-tariff trade barriers. Effective April 5, 2025, a 10% ad valorem tariff applied to imports from all countries.

On April 9, 2025, the ad valorem rates were set to increase between 11% and 50% for 57 countries. However, those increased reciprocal tariffs were paused for 90 days beginning on April 10, 2025.[2] As a result, all countries—except for Mexico, Canada, China, Cuba, North Korea, Russia, and Belarus—remained subject to the previously announced 10%. On July 7, 2025, President Trump further extended the suspension of these higher tariffs until August 1, 2025. Since then, the US has finalized trade deals with multiple countries to adjust these tariff rates based on the removal of trade barriers.

Japan

On July 23, 2025, a trade agreement was reached between the US and Japan. The key contention in negotiations was automobiles and automobile parts, which are Japan’s top exports to the US. Under the terms of the deal, Japanese exports, including automobiles, will be subject to a 15% tariff, which is reduced from the originally proposed 25%.[3] Steel and aluminum were not included in the deal and continue to be subject to a separate 50% tariff.[4] In exchange for these tariff reductions, Japan will invest $550 billion in the US. This deal also provides US automakers access to the Japanese consumer market for the first time, as US automotive standards will now be approved in Japan. [5]

European Union

On July 27, 2025, the US entered the Cooperation Agreement on Reciprocal, Fair, and Balanced Trade with the European Union. The parties published a joint statement outlining details of the agreement on August 21, 2025. The text includes 19 commitments on tariffs and investments, with the US agreeing to cap tariffs at 15% in key sectors such as pharmaceuticals, semiconductors, and lumber. The US will also cut automotive tariffs to 15% once the EU proposes legislation to reduce tariffs on all US industrial goods and to “provide preferential market access” for a broad range of US agricultural products.

When the EU formally introduces the necessary legislative proposal to enact the tariff reductions for selected US products, the US will reduce tariffs on automobiles and automobile parts originating from the EU subject to Section 232 tariffs as follows: No Section 232 automobile or automobile parts tariffs will apply to covered EU goods with a most-favored-nation (MFN) tariff of 15% or higher, and for covered goods with an MFN rate lower than 15%, a combined rate of 15%, comprised of the MFN tariff and Section 232 automobile tariffs, will be applied. These tariff reductions are expected to be effective from the first day of the same month in which the EU’s legislative proposal is introduced.

According to the European Union, this tariff “is a clear ceiling,” and there will be “no stacking” with other US tariffs. The EU explained that for US MFN tariffs that exceed 15%, only the MFN rate will be assessed. Therefore, the 15% rate, not 25% as originally proposed, will apply to automobiles and automobile parts as well as “any potential future” tariffs on automobiles under Section 232, such as the medium- and heavy-duty trucks. The EU asserted that as of that date, both sides will reduce their tariffs to 0% on “a number of strategic products,” including “all aircraft and component parts, certain chemicals, certain generics, semiconductor equipment, certain agricultural products, natural resources and critical raw materials,” and that efforts will be made to “add more products to this list.”

However, the White House made no mention of any such measures. The US additionally stated it will continue to levy its 50% Section 232 tariffs on imports of steel, aluminum, and copper from the EU. EU President Ursula von der Leyen, however, said these “tariffs will be cut” and that “a quota system will be put in place.” Parties will need to await further clarification to more fully understand the application of the deal to mitigate tariffs between these trading partners.

Meanwhile, on August 28, the European Commission put forward two proposals paving the way for the implementation of the EU-US Joint Statement of August 21, 2025, with a view to ensure tariff relief by the US for the vital EU automotive sector starting. These tariff reductions from 27.5% to 15% are expected to be effective retroactively from the first day of the same month in which the EU’s legislative proposals are introduced (i.e., August 1, 2025).

The first act concerns a proposal to eliminate tariffs on US industrial goods and provide preferential market access for a range of US seafood and non-sensitive agricultural goods. The second one proposes to prolong the tariff-free treatment of lobster, now including processed lobster. The European Parliament and Council of the European Union will now have to approve the two proposals under the ordinary legislative procedure before the EU’s tariff reductions can enter into force.

China

The US has yet to finalize a trade deal with China. Since April 2, 2025, the US and China have been engaged in a trade war, which prompted President Trump to modify the applicability of Executive Order (EO) 14257 to China by issuing additional executive orders.

Through EO 14259, issued on April 8, 2025, and EO 14266, issued on April 9, 2025, the president amended EO 14257 and further raised the applicable ad valorem duty rate on Chinese imports. As negotiations continued, the president, on May 12, 2025, suspended the ad valorem duties imposed on China in EO 14257, as amended, until August 12, 2025, and imposed a new additional ad valorem rate of 10%.[6] On August 11, 2025, the president issued an executive order extending the suspension of heightened tariffs on Chinese imports until November 10, 2025.[7] For now, the 10% reciprocal tariff under EO 14298 will remain.

The outcome of the US-China negotiation will significantly affect the automotive industry, given China’s role as a significant exporter and supplier of automotive parts to the US.  

IMPACT ON AUTOMOTIVE SUPPLY CHAINS

As previewed, the automotive industry is subjected to increased scrutiny under the Uyghur Forced Labor Prevention Act (UFLPA).[8] As of October 8, 2025, Customs and Border Protection detained 17,088 shipments between 2022 and 2025 from entering the US under the UFLPA. In those four years, 5,961 shipments were for the automotive and aerospace industries. Among the shipments specific to the automotive and aerospace industries, 5,713 shipments were detained in 2025, constituting 82% of all detained shipments.[9][10]

Additionally, on August 19, 2025, the US Department of Homeland Security’s Forced Labor Enforcement Task Force (FLETF) highlighted that Chinese steel is on its list of high-priority areas for enforcement under the UFLPA. FLETF had identified steel as a key industry in Xinjiang and noted that steel products in the region have been used in certain downstream sectors, including the automotive industry.[11]

Both the enforcement statistics and recent emphasis on the steel industry as high-priority areas of enforcement signal that the current administration has been and will continue to prioritize the automotive industry in enforcing the UFLPA. Because noncompliance with the UFLPA will not only result in detention, exclusion, and seizure of goods but also can expose the importers to civil penalties, those in the automotive sector must continue to do their due diligence in monitoring the supply chain for forced labor.

LOOKING AHEAD

As tariffs on automobiles and automobile parts increase, costs for imported automobiles, automobile parts, and materials are expected to continue to rise. To mitigate such risk, importers should consider whether automotive parts may qualify under the USMCA to minimize tariff impact. Companies may also choose to shift their supply chain to Mexico or Canada to further take advantage of duty-free treatment under the USMCA, including from the reciprocal tariffs. Additionally, if vehicles are finally assembled in the US, importers may choose to apply for the offset adjustment to obtain partial relief on Section 232 tariffs.

To maintain compliance, companies should continue monitoring additional legal developments in the automotive sector, implement a supply chain due diligence program, and remain agile in procurement and regulatory planning.