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President Trump softens auto tariffs: What it means for the automotive sector

On April 29, 2025, President Trump issued a proclamation amending the Section 232 tariffs on imports of automobiles and automobile parts. The measure introduces a temporary “import adjustment offset” for manufacturers assembling vehicles in the U.S., allowing them to offset 3.75% of aggregate MSRP for U.S.-assembled vehicles in the first year and 2.5% in the second year, effectively reducing the tariff burden on imported parts used in domestic assembly.

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On April 29, 2025, President Donald Trump issued an executive order amending Proclamation 10908 (by which the Trump administration imposed a 25% tariffs on imported automobiles and automobile parts under Section 232). The new proclamation introduces a temporary and retroactive relief mechanism for manufacturers assembling vehicles in the United States. This development, announced just days before the new tariffs on auto parts were set to take effect, marks a notable-if partial-reversal in the administration’s trade policy, with far-reaching implications for automakers, suppliers, and the broader automotive sector.

Key features of the tariff amendments

  • Retention of 25% tariff, with targeted relief: The 25% tariffs on imported automobiles and certain automobile parts, as set out in Proclamation 10908, remain in place. However, the new order introduces an “import adjustment offset” for manufacturers assembling vehicles in the U.S., effectively providing a partial rebate on tariffs paid for imported parts used in domestic assembly.

  • Offset calculation and timeline:

    • Year 1 (April 3, 2025 – April 30, 2026): Eligible manufacturers can claim an offset equal to 3.75% of the aggregate Manufacturer’s Suggested Retail Price (MSRP) of all vehicles assembled in the U.S. This figure represents the duty that would be owed if a 25% tariff were applied to parts constituting 15% of a vehicle’s value.

    • Year 2 (May 1, 2026 – April 30, 2027): The offset drops to 2.5% of the aggregate MSRP, corresponding to a 25% tariff on parts constituting 10% of a vehicle’s value.

    • Phase-out: After the two-year period, the offset is eliminated, returning the full force of the tariffs to incentivize increased domestic sourcing.

    • Eligibility and administration of mechanism: Only vehicles that undergo final assembly in the United States are eligible. The offset can be claimed by importers authorized by the manufacturer, and is capped at the manufacturer’s total tariff liability under the relevant proclamations. The Department of Commerce will administer the process, requiring detailed documentation and certifications from manufacturers, and will coordinate implementation with U.S. Customs and Border Protection.

    • Retroactive application: The relief is retroactive, allowing manufacturers to seek reimbursement for tariffs paid since the new policy’s effective date earlier in April.

Policy rationale and industry response

The Trump administration’s stated rationale is to “more quickly reduce reliance on foreign manufacturing and importation of automobiles and automobile parts”, strengthen the U.S. vehicle assembly base, and provide a bridge for automakers to adapt supply chains. U.S. Treasury Secretary Scott Bessent reportedly emphasized the goal of enabling automakers to create more domestic manufacturing jobs, while President Trump described the measure as transitional, designed to avoid penalizing manufacturers unable to immediately source all components domestically.

Automakers and industry groups, who had lobbied intensely for relief, have welcomed the move. General Motors CEO Mary Barra, for instance, reportedly praised the U.S. administration’s willingness to engage in dialogue and provide a pathway for continued investment in U.S. manufacturing. However, the sector remains wary: the volatility and unpredictability of tariff policy have already led to record import surges, profit guidance withdrawals, and significant uncertainty for both manufacturers and consumers.

Legal and practical implications

1. Compliance and documentation:

Manufacturers seeking the offset must submit detailed, certified documentation regarding projected U.S. assembly volumes, tariff liabilities, importer of record information, and more. False or excessive claims are subject to significant penalties.

2. Supply chain strategy:

The offset is designed to reward higher U.S. content and penalize continued reliance on imports. For vehicles with high U.S. or USMCA content, the tariff impact is mitigated; for those with substantial non-U.S. content, the benefit is limited. This creates a strong incentive for supply chain restructuring, but also introduces complexity and compliance risk.

3. Market uncertainty:

Despite the relief, the broader trade environment remains highly unstable. The administration’s willingness to revise tariff policy in response to industry lobbying, and the lack of a clear long-term strategy, continue to undermine business planning and investment.

4. International trade law considerations:

The continued invocation of national security under Section 232 of the Trade Expansion Act remains controversial and is likely to face challenges both domestically and at the World Trade Organization, especially as the U.S. continues to apply and adjust tariffs in a discretionary manner.

Tariff offset mechanism

YearOffset rateBasis of calculationEffective tariff on parts*
Year 1 (2025-26)3.75%15% of MSRP, at 25% tariff3.75% of vehicle MSRP
Year 2 (2026-27)2.5%10% of MSRP, at 25% tariff2.5% of vehicle MSRP
Year 3+0%Offset eliminatedFull 25% tariff applies

*Assumes parts value at 15%/10% of MSRP for offset purposes.

What should automotive businesses do now?

  • Review supply chains: Assess current sourcing and assembly strategies to maximize eligibility for the offset and minimize tariff exposure.

  • Prepare documentation: Begin collecting and certifying the required data for offset applications as soon as possible.

  • Monitor regulatory developments: The Department of Commerce and CBP will issue further guidance and regulations in the coming weeks; staying abreast of these is critical.

  • Engage in advocacy: The administration’s responsiveness to industry input suggests that continued engagement may yield further adjustments.

Conclusion

While the latest executive order provides much-needed, albeit temporary, relief to U.S. auto manufacturers, it does little to resolve the underlying uncertainty that has come to define U.S. trade policy in the automotive sector. The offset mechanism buys time for supply chain adaptation, but the specter of abrupt policy shifts and escalating trade tensions remains. Automotive businesses must remain vigilant, agile, and proactive in both compliance and strategic planning to navigate this volatile environment.

De Minimis Law has substantial experience advising clients on WTO and USMCA rules and related trade policies, including those pertaining to tariffs and national security. For tailored guidance on how these changes affect your operations, please contact our office.

Disclaimer:

This alert is intended only as a high-level summary of recent developments and is not a substitute for specific legal advice.

Dr. Manuel Sanchez Miranda
Partner, International Trade
smiranda@deminimislaw.com
+41 (0)78 694 1217

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