Payam Javan: The United States implemented a 25% tariff on imported automobile parts starting May 3, 2025, as part of President Donald Trump’s strategy to reduce reliance on foreign supply chains and strengthen domestic manufacturing. The tariffs, authorized by a March 26 proclamation, target critical components like engines, transmissions, and electrical systems, but exempt parts compliant with the U.S.-Mexico-Canada Agreement (USMCA) to preserve North American supply chains. To mitigate the impact on U.S. automakers, an “import adjustment offset” allows manufacturers assembling vehicles domestically to reduce tariff costs based on their U.S. output, with offsets of 3.75% of vehicle MSRP in the first year and 2.5% in the second.

The tariffs align with Trump’s broader trade agenda, which includes prior duties on vehicles and steel, though an April 29 executive order prevents tariff “stacking” to avoid compounding costs. Despite the administration’s goal to bolster U.S. auto production—highlighted by a $93.5 billion auto parts trade deficit and only 25% American-made content in vehicles sold in 2024—industry analysts warn of challenges. The Center for Automotive Research estimates a $108 billion cost increase for automakers in 2025, with potential price hikes and supply disruptions looming, particularly in 2026, as the global auto industry adjusts to the new trade measures.