Trump’s 25% tariff on imported cars and parts from April 3 may impact US car demand, global supply chains, and auto sector costs.

US President Donald Trump has announced a 25% tariff on imported cars and auto parts, effective April 3, 2025. This move aims to reduce reliance on foreign manufacturing, especially from China, while bolstering the US manufacturing base. However, the tariff is expected to have far-reaching implications for the global auto industry.

Details of the Tariff

From April 3, fully-built light vehicles imported into the US will face a 25% tariff. By May 3, the tariff will extend to imported engines, transmissions, powertrain parts, and electrical components. Auto parts complying with USMCA standards will remain tariff-free until the Department of Commerce establishes a process to evaluate the value of non-US content in such parts.

Impact on Automakers

The tariffs could increase average vehicle prices by $3,700, approximately an 8% rise. If automakers pass on 50% of this hike to consumers, demand may drop by 8%, or nearly 1 million vehicles, from the 2024 total of 16 million new car sales.

Jaguar Land Rover (JLR), heavily reliant on the US market, could face significant challenges. In FY24, 23% of its revenue came from the US, and exposure increased to 33% in FY25. JLR’s Defender, manufactured in the EU, accounted for over 25% of its US volume during this period, making it particularly vulnerable to the new tariffs.

Impact on Auto Parts Suppliers

Major Indian auto component suppliers such as Bharat Forge, Sona Comstar, and Samvardhana Motherson have considerable exposure to the US market.

• Bharat Forge: 25% of consolidated FY24 revenue from the US (28% in 9MFY25).
• Sona Comstar: 40% of revenue from the US in FY24 (43% in 9MFY25).
• Samvardhana Motherson: 18% of revenue from the US in FY24, with manufacturing facilities in Alabama, Michigan, and Houston that may mitigate some of the tariff impact.

Balkrishna Industries, with 18% of FY24 revenue from the US, may face challenges if the tariffs extend to tyres.

Challenges in Shifting Manufacturing to the US

Relocating manufacturing to the US may not be a viable option for all companies due to significantly higher labour costs. Hourly wages in the US are five times higher than in India. Additionally, simultaneous shifts by multiple OEMs and suppliers could create a labour shortage, driving wages even higher.

Setting up new facilities in the US is estimated to take two years, further complicating the transition. The existing tariffs on steel and aluminium imports add to the cost pressures for manufacturers.

Macroeconomic Impacts

The tariffs could also have broader economic repercussions. Price hikes across consumer goods may increase inflation, raise interest rates, and negatively affect consumer sentiment. Reports already indicate that US consumer sentiment has hit a 12-year low.

Governments in India and the UK are engaged in trade negotiations with the US, seeking to mitigate the impact of these tariffs. However, reciprocal tariffs from other countries remain a risk.

As the industry braces for these changes, companies must conduct a thorough cost-benefit analysis to navigate this evolving landscape effectively.

Source: FE