INDUSTRY INSIGHT
THE GLOBAL AUTOMOTIVE INDUSTRY IS SET TO BE SIGNIFICANTLY IMPACTED BY US TARIFFS
The US government revealed a substantial 25 % tariff on all imported automobiles and automotive parts on April 2, 2025. This action is expected to have significant consequences, especially for the automotive sector
GlobalData, a leading data and analytics company, observes that the US tariffs on foreign automobiles and parts could have significant repercussions across the global automotive industry. However, the US president has announced a 90-day suspension on implementing the new tariffs to allow for trade negotiations with partner trading countries.
Madhuchhanda Palit, Automotive Analyst at GlobalData, comments:“ The economic repercussions of these tariffs are particularly pronounced for Japan, where the automotive industry is a vital economic pillar. According to the Japan Automobile Manufacturers Association( JAMA), over 30 % of Japanese car exports were directed to the US in 2023, solidifying its status as the largest single-country export market.“ Projections from Japan’ s Ministry of Finance indicate that automotive sales accounted for approximately 30 % of Japan’ s total exports to the US, valued at around ¥ 6 trillion($ 40 billion) in 2024. The looming tariffs threaten to disrupt this critical trade, compelling the Japanese government to act swiftly to negotiate favorable terms with US officials.”
South Korea has also introduced emergency measures to offset the expected financial impact of US tariffs, given their reliance on the automotive sector. These measures include a multi-billion-dollar support package from the South Korean trade ministry, encompassing increased financial backing, tax incentives, and subsidies for local automakers. The plan is to raise policy financing support for local manufacturers to 15 trillion won( approximately $ 10.09 billion) by 2025. India, a major supplier of automotive components to the US, is also expected to be affected by the new tariff regulations. The 90-day halt in negotiations is a critical period for APAC countries to adapt to the changing trade environment.
German car manufacturers, especially Mercedes, Audi, BMW, and Volkswagen, are expected to be significantly affected by the US tariffs. These companies are now faced with difficult decisions about whether to temporarily halt shipments or to absorb the additional tariff costs. This is due to the fact that a significant percentage of their US sales volume is imported. For example, only 41.6 % of Mercedes-Benz’ s total US volume is produced domestically, while Audi’ s US production is even more heavily reliant on imports, with only 28.9 % of its US volume produced in the US.
Palit adds:“ The situation poses a significant challenge for European manufacturers, as increased tariffs could lead to higher vehicle prices in the US market, potentially driving customers toward competitors. Moreover, the dilemma these manufacturers face, whether to absorb costs or raise prices, could have lasting implications for brand loyalty and market share. The German automotive industry, which makes up nearly 65 % of the EU’ s automotive exports, is acutely aware of the risks.” The EU responded to US tariffs on EU steel and aluminum with a 25 % tariff on approximately € 22 billion worth of US goods. However, after the US president announced a 90-day suspension of tariff increases, the EU paused its retaliatory tariffs pending the outcome of trade discussions.
The temporary suspension of retaliatory tariffs offers a glimmer of hope for de-escalation. However, the uncertainty surrounding the negotiations means that businesses must remain agile and adaptable in their strategies. A tit-for-tat approach underscores the fragility of international trade relationships and suggests that a prolonged trade war could result in a detrimental cycle of tariffs that would harm both economies. Should a resolution be reached, it could foster a more stable environment for investment and growth in the automotive sector.
Palit concludes:“ The US president’ s decision to suspend tariff increases for 90 days while negotiations unfold presents a critical opportunity for all stakeholders involved. Larger manufacturers may adapt through strategic pricing and production shifts, but smaller suppliers may face a more precarious future amid these changes. As the automotive sector increasingly focuses on domestic production to mitigate tariff impacts, the evolving landscape presents both immediate challenges and potential long-term opportunities for growth and investment.”
Quotes provided by Madhuchhanda Palit, Automotive Analyst at GlobalData.
aBr WORDS IN ACTION 10 MAY 2025