Increased tariffs pose a significant threat to the automobile industry. What's the potential outcome?

In a significant move, President Trump imposed new tariffs of 25% on steel and aluminum imports from Canada, Mexico, and China, effective from March 12, 2025. These tariffs, without exemptions, will affect all exporters of these products to the US, including the European Union, the United Kingdom, Norway, Switzerland, Canada, and Mexico.

This decision, if unchanged, could have far-reaching consequences on global trade and the automotive industry. According to S&P Global Mobility, the assumed 10% universal tariff on all countries, other than those in the USMCA, could lower global sales by around one million units per year over 2025, 2026, and 2027.

In the automotive sector, the biggest impact is expected in 2026. Presuming no exemptions, annual US vehicle sales could decline between 150,000 and 600,000 units. The hardest-hit regions would be the European Union and Asia in this scenario.

The European Union has responded by considering lowering its tariff on US autos as a countermeasure. However, if tariffs on the automotive sector without exemptions are implemented, this could further escalate the trade dispute.

It's important to note that autonomous vehicles and cybersecurity in the automotive industry are emerging trends, separate from the tariff discussions.

In a reciprocal or matching tariff scenario, the US could set import tariffs to match those imposed on its exports by each of its major trading partners. This could lead to a rise in tariffs on all trading partners if the US requires redress via an additional tariff proportional to the level of VAT applied in the destination country.

President Trump has also indicated potential tariffs on cars, semiconductors, and pharmaceuticals. He has ordered a review of US trade relationships, with an announcement regarding the tariff changes expected in April 2025.

S&P Global Mobility expects that tariffs could slow global economic growth, damage supply chain relationships, and drive inflation. They warn that these tariffs could have significant and long-lasting effects on the global economy.

In addition to tariffs, non-tariff barriers, such as itemized trade grievances, market access issues, or foreign exchange manipulation, could also be a concern for US exports. President Trump has expressed interest in addressing these barriers by using an additional top-up tariff.

The US could potentially match the EU Common External Tariff (CET) of 10% instead of using the existing 2.5% US passenger vehicle tariff rate. This would further increase the impact on global trade and the automotive industry.

As the situation evolves, it's crucial to monitor these developments closely to understand their potential impact on global trade and the economy.

Increased tariffs pose a significant threat to the automobile industry. What's the potential outcome?