Key Points:
- Automakers will no longer face overlapping tariffs on foreign cars and parts.
- Rebates of up to 3.75% will offset parts tariffs for US-assembled vehicles.
- Policy aims to support onshoring without abandoning core 25% tariffs.
President Donald Trump has signed an executive order easing the pressure of his sweeping 25% auto tariffs, offering automakers partial relief in an effort to stabilise the industry while maintaining his broader protectionist strategy.
The order, signed aboard Air Force One en route to Michigan, prevents automakers from being hit by multiple tariffs simultaneously—a practice known as “stacking.” Instead, manufacturers will only pay the highest applicable duty on imported vehicles or parts. This change effectively removes additional levies on steel, aluminium, and China-related sanctions from stacking on top of the auto tariffs.
“Automakers will pay either steel or auto tariff, whichever is higher,” a Commerce Department official explained. “Rebates will be paid from tariff revenue, so there’s no cost to the government.”
Rebates tied to domestic production
The order also introduces a rebate scheme to help companies that assemble vehicles in the United States offset the cost of foreign parts they still rely on. Rebates will be equivalent to:
- 3.75% of vehicle value in the first year, and
- 2.5% in the second year, before phasing out entirely.
These figures reflect the administration’s estimates that automakers initially need time to replace 15% of foreign-sourced parts, declining to 10% in year two.
The rebates apply retroactively from April 3 and are available to both domestic and foreign-owned manufacturers with US assembly operations.
“Finish your cars in America, and you win,” the official summarised.
Industry welcomes relief, but warns of lingering instability
The move follows mounting pressure from automakers and suppliers who warned that the combined burden of auto, metal, and component tariffs could raise vehicle costs, suppress demand, and delay investment. General Motors, Ford, and Stellantis had all lobbied for targeted exemptions.
“These decisions will help mitigate the impact of tariffs on automakers, suppliers, and consumers,” said Ford CEO Jim Farley, calling for other automakers to match Ford’s domestic production levels.
GM CEO Mary Barra said the change “levels the playing field” and would allow GM to further invest in the US economy. The company delayed its Q1 earnings call by two days to assess the implications.
Stellantis chair John Elkann praised the move and said the company looked forward to further collaboration with the administration.
Policy aims to give automakers time to shift supply chains
Trump and Treasury Secretary Scott Bessent framed the changes as a short-term bridge, not a reversal of trade policy.
“We just wanted to help them during this little transition,” Trump said. “If they can’t get parts, we didn’t want to penalise them.”
Bessent added that the relief would allow time for companies to onshore supply chains, build new factories, and create domestic jobs—core goals of Trump’s economic agenda.
However, the exemptions do not apply to Chinese auto parts, which remain subject to Trump’s most aggressive tariffs—reportedly at least 145% in some cases.
Analysts sceptical of limited impact
Despite the relief, analysts questioned the practical effect of the changes. Dan Levy of Barclays called the benefit “somewhat limited” given the magnitude of the core tariffs. Sam Fiorani, of AutoForecast Solutions, noted that altering production footprints takes years and billions in investment.
“These rollbacks are small and won’t likely change much,” Fiorani said. “Concrete answers just aren’t there yet.”
Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, criticised the partial carve-outs, saying the right level of tariffs should be “zero” in an industry as globally integrated as auto manufacturing.
Broader economic concerns persist
Trump’s visit to Michigan marked the 100th day of his second term, with the state’s auto sector serving as a political backdrop to his broader efforts to reshape global trade. His administration has already rolled out universal tariffs, paused in some sectors but fully imposed on autos.
Economists remain concerned about inflationary pressures and supply chain disruption. A letter signed by major automakers including GM, Toyota, Hyundai, and Volkswagen warned that the auto parts tariffs—set to take full effect by May 3—could lead to production halts, layoffs, and even bankruptcies.
“Most auto suppliers are not capitalised for an abrupt tariff-induced disruption,” the letter said. “It only takes the failure of one supplier to shut down an automaker’s production line.”
