President Trump signed an executive order on Tuesday to return tariffs on car manufacturers, executive officials said they removed taxes that he complained that Ford, General Motors and others would back US manufacturing by increasing production costs and narrowing down profits.
The change will change Trump’s tariffs, so the automakers that pay 25% tariffs on car imports are not subject to other taxes on steel or aluminum, for example, officials said in a call with reporters Tuesday.
Automakers can also qualify for tariff relief at a percentage of the cost of imported components, but these benefits will be phased out over the next two years.
Speaking before leaving the White House on Tuesday, Trump said the administration said it wanted to help carmakers “enjoy this small transition in the short term.
“If they couldn’t get the parts, we didn’t want to punish them,” he said.
The decision to cut the tariff coverage is the latest indication that the Trump administration’s decision to strictly collect almost all trading partners has created disruption and economic uncertainty for American businesses. But even with concessions announced Tuesday, the management policy adds thousands of dollars to car prices, putting the financial health of carmakers and their suppliers at risk, analysts said.
On Tuesday, General Motors abandoned previous forecasts of solid profit growth this year as a result of the uncertainty created by Trump’s trade policy. The automaker, which sells more vehicles than any other company in the US, said profit forecasts are “predictions.”
“Previous guidance cannot be relied on,” GM’s chief financial officer Paul Jacobson said during a conference call with reporters.
The automaker also postponed a conference call with financial analysts, discussing the results of the first quarter, citing expectations of changes to the Trump administration’s tariff policy. The company will call on Thursday.
The order will be held to mark Trump’s 100-day inauguration, home to Michigan, the home of America’s largest automaker.
Automakers welcome the easing of rates, saying it will raise car prices, lower sales and threaten economic viability. However, the measures will leave a 25% tariff on imported vehicles that came into effect on April 3, as well as a duties on auto parts that will be effective on Saturday. This will increase the prices of new and used cars by thousands of dollars, and increase the costs of repairs and insurance premiums.
The move comes weeks after managers were exempt from penalizing Chinese tariffs for concerns from companies like Apple that import taxes would cause prices for US consumers.
Commerce secretary Howard Lutnick said on Tuesday the change was attributed to direct conversations with domestic automakers, with the administration having “constant contact” with businesses and analysed businesses and accurately grasped their policies.
“Donald Trump and his presidency are going to bring back domestic car manufacturing,” Rutnick said.
Analysts say the policy will provide some relief to automakers, but automakers will still face major financial impacts from the Trump administration’s tariffs.
Commerce Department officials said in a call with reporters Tuesday that the following year, the automaker will receive a 25% tariff exemption on imported auto parts, which is equivalent to 15% of the retail price of the car. In the second year, the exemption is offered at 10% of the car’s retail price, but in the third year it disappears.
For example, a rebate for auto parts duties has resulted in Barclays analysts calculating that a $50,000 car could contain $1,875 worth of parts that are not subject to customs duties in the first year.
Renee Lalacca, the leader of the US automotive industry at consulting firm KPMG, said the exemption would buy automakers for a while. “It gives them a little time to plan what their strategy is.”
However, automakers and suppliers say three years isn’t enough time to restructure their manufacturing operations. Even so, in the US, you can’t make many components cheaply, and the prices are higher.
The latest rules also leave exemptions for parts imported from Canada and Mexico that comply with treaties Trump negotiated during his first term. Both countries are major suppliers of the US automotive industry.
Even vehicles manufactured in the US usually use far more imported parts than exemptions cover. Most cars also contain Japanese, Korean or Chinese components that are subject to customs duties.
“Major tariff headwinds remain,” Barclays analyst said in a report Tuesday.
Automakers will continue to be subject to other duties, such as the 2.5% duties normally paid on imported vehicles. The administration has yet to publish the text of the executive order, and many other details remain unknown.
Automakers will pay customs duties indirectly on steel and aluminum. Their suppliers do not have exemptions and pass job costs to customers, automakers.
“Today’s relief won’t fix the long-term challenges,” Bernstein analyst said in a memo Tuesday. “U.S. car prices are just as high as economic momentum fades.”
Nonetheless, automotive executives expressed their gratitude for Trump at least addressing some of their concerns. In a statement Monday, General Motors CEO Mary T. Bala said the company appreciated “productive conversations between the president and his administration.”
“The president’s leadership helps businesses like GM level the playing field, allowing them to invest more in the US economy,” she said.
“Stellantis appreciates the tariff relief measures decided by President Trump,” John Elkann, chairman of the company that owns Dodge, Jeep, Ram and Chrysler, said in a statement. “We are further evaluating the impact of tariff policy on North American businesses, but we look forward to continuing cooperation with the US administration to strengthen the competitive American automotive industry and stimulate exports.”
The executives also suggested that they hope that ongoing consultations with the administrators will lead to further concessions. “We will continue to work closely with the administration to support the President’s vision for the healthy and growing automotive industry in America,” Ford CEO Jim Farley said in a statement.
The exemption appears to have been partially designed by Rutnick, who has played a role in securing favorable exemptions for several industries over the past few months. In a statement Monday, Rutnick called the deal “a big victory in the president’s trade policy.”
The arrangement “rewards domestically-made companies while providing runways to manufacturers who have expressed their commitment to invest in the US and expanding their manufacturing in the country,” Ludnik said.
Neal E. Boudette contributed the report.
