Revised Tariff Rates Established for European Union, Canada, and Mexico

The ongoing trade dispute between the EU and the US has taken a significant turn, with both sides imposing tariffs on various goods. The EU has threatened reciprocal tariffs on €21bn of US goods, including a 25% tariff on steel and aluminium, but has postponed these until 1 August in hopes of reaching a trade deal.

The tariffs, which came into effect in March, are starting to impact the US market, particularly the automobile industry. OEM sales are declining, and carmakers are facing potential price rises as they sell through their stock.

The tariffs could have severe consequences for OEMs operating in both the EU and the US. If the tariffs remain on 1 August, these companies may face significant revenue losses in the US market, cost-cutting measures, layoffs, plant closures, and a rapid shift of jobs overseas, particularly to India, China, and North America.

The tariffs on steel and aluminium imports to the US have doubled to 50%, while copper imports continue to be subject to a 50% tariff. Following the announcement of these tariffs, copper prices jumped to an all-time high, with US copper futures soaring to $5.682 a pound.

Trump has also increased the tariff rates for goods imported from Mexico to 30% and for goods imported from Canada to 35%. Other parts from these countries that are not strictly classified as 'automotive' parts, such as material components and minerals, will likely be tariffed heavily.

Vehicle imports from the EU will be taxed at 27.5%, while automotive parts will be taxed at 25%. Tariffs for parts not classified as 'automotive parts' from the EU will also be steep. Goods transshipped to evade the higher tariff on goods from Mexico and Canada will be subject to that higher tariff.

However, for vehicles coming from Canada or Mexico that are USMCA-compliant, the rate will be 25%, without the additional 30-35% duty. US-sourced parts can be offset from USMCA-qualifying vehicles built in Canada or Mexico and imported to the US, potentially reducing the 25% vehicle tariff down to between 12-15%.

The EU's lead negotiator, Maroš Šefčovič, has stated that if the tariffs remain by 1 August, they will make it "almost impossible to continue" current transatlantic trade volumes. The tariffs on goods imported from the EU are expected to cause potential material shortages, capacity bottlenecks, probable price rises, and delays in the North American supply chain.

It's important to note that the USMCA-compliant exemption for the automotive industry is temporary. OEMs with a presence in both the EU and US may face extra costs if they attempt to evade tariffs by localizing or refocusing their manufacturing within the US due to higher tariffs on additional tooling, equipment, and technology needed to expand manufacturing capacity.

In conclusion, the escalating trade tensions between the EU and the US, and within North America, are causing significant disruptions to the automobile industry. The impact of these tariffs on OEMs, supply chains, and consumers is far-reaching and complex, and the situation remains fluid as both sides continue negotiations.