The news yesterday that President Trump was putting a 90-day pause on the tariffs he’d imposed on countries across the world sent a ripple of hope through industries that the impacts of a potentially impending trade war wouldn’t be as severe as feared.
A 25% tariff
The tariffs, which were officially announced on 2nd April by Trump, included a 10% baseline tariff on almost all foreign imports into the US, in a move that Trump hoped would encourage more American citizens to buy American-made products, and rely less on imports. Some nations had already retaliated, most notably China, who hit the US with an 84% levy following Trump’s 104% tariff imposed on Chinese goods.
The automotive industry was landed with a 25% levy, more specifically taxing imported passenger vehicles, light trucks, and key automotive components including engines, transmissions, powertrains, and electrical components. It is particularly vulnerable, as figures from the SMMT posit the US as its second largest market for exports.
“More than 101,000 units [were] shipped in 2024, representing 16.9% of cars exported,” said Cara Haffey, Industrials and Services Leader, PwC UK. “Tariffs of any kind will therefore have considerable repercussions for the UK automotive sector.“UK automotive companies are now reconsidering their manufacturing site maps and exploring how they can expand existing US operations and assessing creating long-term US based operations, if the market is or could be very important to their brand.”
In the same vein, vehicle manufacturers are going to have to take a good, long look at their supply chains. “There are potential grounds for issues where goods of varying origin are mixed into a single component, or if specific trade partners are treated differently, e.g. China to [the] USA. UK manufacturers can also adapt their supply chains by looking at raw materials and parts that are impacted and assessing whether there are now economic benefits in localised sourcing,” added Haffey.
The automotive industry has responded to this with a mixture of concern, as manufacturers such as Ferrari said they would plan to increase prices by up to 10% to offset the impact of the tariff, a cost that would ultimately be passed onto the end customer. Some have urged for greater conversation to prevent the tariffs from coming into effect.
Among them was the European Automobile Manufacturers’ Association (ECEA), which put out on the 7th April that it was “essential that European and American leaders urgently find a solution to the ongoing trade conflict”, according to its Director General, Sigrid de Vries. The ACEA reported that up to €67 billion of EU automotive industry exports were anticipated to be affected, with a total estimated cost of €80 billion.
In a statement, Mike Hawes, Chief Executive of the SMMT spoke of “disappointing and damage measures” of the tariffs imposed on UK imports to the US, stating: “These tariff costs cannot be absorbed by manufacturers, thus hitting US consumers who may face additional costs and a reduced choice of iconic British brands.” The SMMT counts Bentley Motors and Rolls Royce among its members.
90-day pause
The pause on tariffs is allowing vehicle manufacturers to rethink strategy, but it doesn’t necessarily mean the tariffs will go away outright. For manufacturers like Hyundai, whose exports to the US are 16% of total export volume, Subaru at 32% and Toyota at 5%, GlobalData said, this exposure to the US market makes them especially susceptible to tariff increases.
“While major automakers like Toyota Motor have reported record profits, small and medium-sized suppliers are expressing concerns. Rising raw material and labor costs have made it increasingly challenging for these firms to pass expenses onto clients, particularly in light of wage increases,” said Madhuchhanda Palit, Automotive Analyst at GlobalData. “The impending tariffs could exacerbate these challenges, as larger manufacturers may consider relocating production to the US, potentially jeopardising the livelihoods of local suppliers. The automotive ecosystem, particularly in countries such as Japan, is at risk, with small businesses reliant on larger automakers facing heightened instability.”
Car manufacturers’ strategies have varied widely, according to GlobalData. Subaru has already notified dealers that current pricing cannot be guaranteed in a move that could be mirrored by other manufacturers, Hyundai, on the other hand, has launched a Customer Assurance programme to reassure consumer concerns and Toyota has announced it has no plans to raise prices.
Nissan, meanwhile, will be relocating part of its production to the US – part of a wider trend that reflects how manufacturers are planning on avoiding the costs. Hyunda has committed $21 billion, including a $5.8 billion steel plant based in Louisiana, while Toyota has invested $14 billion in a in-house battery plant in North Carolina.
Audi and Jaguar Land Rover have taken a different approach as both companies said they would be temporarily halting shipments to the US. Audi said this would allow it to work through current inventory, and Jaguar Land Rover said it will give it time to develop its plans for the future.
Rethinking procurement strategies
Procurement strategies within the automotive industry may have to be rethought to mitigate the increased costs of the tariffs.
Some of these strategies may include the diversification of a supplier base – as manufacturers explore expanding suppliers to include regions unaffected by the tariffs – shifting production to the US market to avoid import, although this will arguably be more time-consuming and a long-term step; absorbing the cost of the tariffs or passing on the costs to end customers; and accelerating inventory shipments before the tariffs take effect.
Whatever strategy manufacturers aim for, the supply chain of the automotive industry is set to experience a significant shake-up, and only the coming months will tell what the true impact of the tariffs will be.
